Raid on bank accounts in Cyprus

[MrsJREwing]

Nearly 10% of savings will be taxed from private individuals savings, to save the banks.

If by "default" you mean "banks collapsing" (not the right term for it, by the way), then depositors will lose all their savings. I doubt if that is what they would prefer.

They should let the banks collapse, take them into Govt conservatorship, liquidate the bad assets the banks hold and impose losses on shareholders and bondholders. Then take bank branches and staff and set up 'Good Banks' with the deposits of existing Cypriot savers in a Cooperative customer owned format like an old fashioned UK building society.

Cyprus will still have a banking system. Just not the old one.

sherbertpips, they will recoup 5.8 bn by doing this so presumably there are approximately 58 bn in the accounts

"Liquidate the bad assets banks hold"

Do you know what happened to those bad assets (i.e. Greek government bonds)? Yes, they can be liquidated but for only about 1% of purchase price.

These banks were heavily invested in that Greek debt and now have no more assets of any significance left.

"Cyprus will still have a banking system. Just not the old one."

Cyprus has no banking system as of yesterday. Anyone who can possibly move their money elsewhere will do so on the banks' first business day, regardless of whether 10% gets cut off or not.

Cote - Cyprus has a bond repayment in June it cannot meet. This bailout was delayed until after the Italian election for EU political reasons to avoid frigthening Italian voters. The EU failed to deal with this Cyprus mess early enough because it was playing politics and it failed. It lost control of the Italian electorate anyway and now it has thrown fuel on the fire with this seizure of bank deposits.

Russia is meanwhile playing its old game of trying to dominate energy markets in Europe and getting access to a Mediterranean port which it has always wanted.

I think you live in France?

Quite frankly if I were you I would get my money out now. She/He who panics first will get the last laugh in this game.

Cote, why on earth do you think that depositors in Cyprus banks are shareholders and sovereign bond holders?

These tend to be big insitutional investors from all over the world, not Ms. Pension widow with her ?40,000 in a bank.

Here is a pretty good solution

blogs.reuters.com/felix-salmon/2013/03/19/a-much-better-alternative-for-cyprus/

My money is not in France, but thank you for your concern.

Fine. If some assets are worthless then shareholders and bond holders may get nothing.

The Cypriot banks still have some cutomers paying interest and loans back and bank branches and no doubt some other assets plus a customer deposit base. These can be used to form the basis of much smaller and much simpler Cypriot banking system.

"My money is not in France"

That is what I like to call a 'good starting point'.

I hope it's not in Cyprus

Am I the only one that thinks that, in principal, it's ok? If it was a choice between cutting services and taking rich people's money, I know which one I'd vote for.

MoreBeta - Cyprus isn't a normal country with a normal banking system. It is a tax haven with a disproportionate banking sector (8x its economy).

It is practically impossible for the banks of Cyprus to recapitalise themselves with contributions from real economy, simply because the latter is so small compared to the banking sector.

If banks fail, all deposits disappear overnight.

Keeping banks afloat needs 16 bn Euros.

There aren't many solutions to the above, I'm afraid.

Am I the only one that thinks that, in principal, it's ok? If it was a choice between cutting services and taking rich people's money, I know which one I'd vote for

Are we in a parallel universe?

KirstyoffEastenders

Am I the only one that thinks that, in principal, it's ok? If it was a choice between cutting services and taking rich people's money, I know which one I'd vote for.

Let's imagine then that it goes ahead and the government helps themselves to a slab of money from everyone. What message does that send?

What it says to people is 'Doesn't matter who you are or what you've done with your life, doesn't matter about the law, we will take your money if we deem it necessary'. Suddenly, people will stop trusting the bank system. They'll store the money offshore. They'll store it in their mattress. But they won't trust the government to respect the law with regard to money.

You'll make a few bob now but you've undermined the whole premise of the banking system and worse - you've destroyed trust in it.

Currencies and modern economies work on one thing and one thing only. Trust. I have to trust that, when I take my £5 note in to the shop to buy a sandwich, that the person I'm buying from will accept it as legal tender, that the note itself is genuine and that the product I'm buying for that money is genuine. As soon as that trust is eroded, it shakes the foundation of the economy.

That this has even been considered is frightening. The currency system has worked so well for so long that we no longer recognise it as an arbitrary tool which relies on one person trusting another's word. If the EU wanted to find a single thing which would cause the immolation of the Eurozone they couldn't have picked a better option.

Who will trust the EU now? Will the Spaniards or Italians keep their money in their banks now they can see what can happen to it? Will anyone?

Yes, there are. See the link I posted above

That is not a serious proposal. Your link talks about refusing to pay out from any deposits over 100,000 Euros for 10 years, which is not possible.

Why?

Governments introduce new taxes all the time, what's the difference?

flatpack - what you say is very fundamental.

Trust is crucial in all 'fiat' paper money systems. A bank note is really just a promise TO PAY a certain value like a cheque. In fact bank notes originated as cheques and in systems where banks stay closed for a long time (eg in natural disasters) people often do start passing endorsed cheques around between trusted parties as promises to pay like bank notes.

Anyone who breaks that promise, be it individual, firm, bank or Govt will be rejected immediately by the system built on trust. That is what the Cypriot people are doing. Rejecting the Govt that broke their trust.

If banks in Cyprus do not open soon I am not sure how long even paper Euro notes will be trusted. I suspect other currencies such as Rouble, Pounds, Dollars are already being circulated and accepted by people. People will barter with cigarettes, bottles of booze and even return to using gold.

Flatpack and MoreBeta, so true.

I see that the Buchheit and Gulati proposal to convert non-guaranteed deposits into CDs is being considered by Cyprus, atleast according to the latest coverage in the Telegraph. That does seem the best option, imo.

KirstyoffEastenders

Governments introduce new taxes all the time, what's the difference?

Taxes say "From date X in the future, we will take Y."

This says "We will take Y, and we will apply it to all earnings before date X."

See also MoreBeta's point about currency.

I don't think I can reiterate often enough, or strongly enough, the importance of trust here.

Some interesting points raised here, for those open to a different point of view:-

www.guardian.co.uk/commentisfree/2013/mar/18/cyprus-wealth-tax-good-thing

www.guardian.co.uk/commentisfree/2013/mar/18/cyprus-wealth-tax-good-thing

Kirsty,

Maybe I missed it in the article, but where is the justification for grabbing a portion of the bank deposits of people with savings less than ?100,000?

The author just glosses over this point....

But it is really the most contentious and alarming issue in the bailout.