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Haircut in Cyprus
March 17, 2013 7:56 AM   Subscribe

On Saturday the EU mandated that all bank deposits in Cyprus pay a 6.75% "stability levy" on the first €100,000 and 9.9% on the excess to help pay for €6 billion of the €10 billion bank bailout. This is despite opposition from the Cyprus finance minister, who stated earlier this month that "there really couldn't be a more stupid idea" and more recently that "I wish I was not the minister to do this". The scale of the bailout is nearly 50% of Cyprus' entire GPD, and many officials are concerned that the money will go to Russian gangsters and oligarchs. The Saturday announcement lead to a run on the ATMs, which caused banks to restrict electronic transfers and set a €400 withdrawal limit. Most ATMs were out of money by the end of the day and a frustrated man threatened one bank with a bulldozer. The plan was scheduled to be voted on by parliament on Sunday, but it has been delayed to Monday and might not be passed by politicians who have heard complaints from their Cypriot constituents all weekend. The Cyprus President warned of total financial collapse and euro exit if it is not approved.
posted by autopilot (107 comments total) 19 users marked this as a favorite

 
This is so fucking dumb. Just place the levy on accounts over the 100k EUR deposit insurance limit. Oh yeah and swap all of the debt for equity. But you would still need the levy. Cypriot banks don't actually have very much debt, so nearly all of their liabilities come in the form of deposits.

The net result of this is that small savers pay for something they were told was never a risk. Large account holders aren't forced to pay the full amount for failing to underwrite the solvency of their banks, and the debt holders (again, a small amount, but the group that should be hit first) basically get off for free.

This is like a "how-to create a bank run in peripheral Europe"
posted by JPD at 8:20 AM on March 17, 2013 [13 favorites]


I am Greek. I know people with business in Cyprus. This was a monumentally stupid decision. I see how it could have been far, far, worse: the haircut could have been larger, it could have been more drawn out, etc. But: why are senior bondholders not "bailed in" and depositors are? why are they opening this Pandora's box?

The risk of contagion is already here in Greece: what is less publicized in the foreign press is that as part of the deal three mid-size Greek banks, which are branches of the larger Cypriot banks, are essentially liquidated: forced to merge with a (TBD) Greek state bank, their assets and liabilities folded in and their employees (~5,000 ppl) in limbo. It's obvious that the Greek subsidiaries were obviously not viable at all. The major Greek banks have not been re-capitalized yet, and they have refused to deal with bad assets (mortgages mostly, that are in the red due to the 4 year recession). How can ppl here have any faith that the rest of the Greek system is anywhere near healthy? how would they not move their money abroad (again)?

As for Cyprus, this is a rotten deal: the Cypriot banks have mostly been screwed over because of their liabilities in Greece, and the Greek public debt restructuring. Their financial business in Cyprus (Russian mostly) was healthy, as far as these things go.

Essentially Cyprus is being punished for being a successful offshore finance center that bet in the wrong market (Greece). Ireland was pretty much guilty of the same things, only they had bet in a politically powerful market (UK). I bet Germany would bail out Luxembourg if/when it blows its bubble...
posted by costas at 8:26 AM on March 17, 2013 [4 favorites]


Cyprus is more like Iceland than Ireland.
posted by JPD at 8:30 AM on March 17, 2013 [1 favorite]


This is a fantastic way to completely destabilize the European banking system. Banks run on confidence, on people's willingness to trust them, and believe in them.

But now everyone will suspect that it's a different kind of "confidence" involved. They've set the stage for a bank run of monumental proportions, and not just in Cyprus.
posted by Chocolate Pickle at 8:34 AM on March 17, 2013 [7 favorites]


The stability of the entire economic system is predicated on the trust that the middle class have in the banks to keep their money intact. This is not an exaggeration. If Joe Plumber keeps his money in his mattress, that money cannot help breed more money, which is the purpose of capital finance. If all wage earners keep their money in their mattresses because they stop trusting the banks, the capital finance system will dissolve.

There is no more realistic analogy for this situation than "killing the goose that laid the golden eggs."
posted by seanmpuckett at 8:42 AM on March 17, 2013 [9 favorites]


It'll be all worth it so long as there's no slight increase in inflation in Germany, right folks?
posted by Talez at 8:44 AM on March 17, 2013 [5 favorites]


The BBC is reporting that the UK will reimburse UK military and government employee account holders with deposits in Cypriot banks.

Salon has a good summary that mentions that the banks have already placed holds on the levy amounts as of the time of the announcement, so it seems that maxing out withdrawals from the ATM isn't going to affect the amount that is levied. But as Chocolate Pickle mentioned above, banks run on confidence so once a run starts, the rational thing to do only exacerbates the situation.
posted by autopilot at 8:47 AM on March 17, 2013 [1 favorite]


Monetary union has long since been revealed to be one of the greatest mistakes in modern history -- but pigheaded European leaders still cling to the Euro and refuse to let it go. It's led them into a cascading series of mistakes which compound the failure. This is the latest one.

Eventually they're going to have to abandon the Euro and return to national currencies. The longer they wait, the worse the pain will be.
posted by Chocolate Pickle at 8:47 AM on March 17, 2013


The damage is done. Even if they come to their senses and roll this back, the mere fact that they seriously considered doing this will cast a shroud of suspicion over the whole banking system.
posted by Chocolate Pickle at 8:50 AM on March 17, 2013 [3 favorites]


Yes, ATMs and e-banking in Cyprus has been frozen, no one can take out any amount, not just the 10% levy. Actually, the Cyprus central bank just froze all transfers, including to within Cyprus, even within the same bank.
posted by costas at 8:50 AM on March 17, 2013 [1 favorite]


Also, FWIW, Christoforos Pissaridis, a Cypriot and a Nobel Laureate in Economics sided with the levy saying it's the only way out... (sorry for the Greek-language links...)
posted by costas at 8:55 AM on March 17, 2013 [1 favorite]


Is it just* bank accounts? Seems incredibly regressive if they don't take percentages of people's stock shares held in brokerage accounts.

*: I mean "only", not "merely"
posted by Flunkie at 8:55 AM on March 17, 2013


But: why are senior bondholders not "bailed in"

They have power.

and depositors are?

They don't.
posted by scalefree at 8:56 AM on March 17, 2013


The scale of the bailout is nearly 50% of Cyprus' entire GPD, and many officials are concerned that the money will go to Russian gangsters and oligarchs.

This part of the original post is out of sequence. This is a key part of the rationale (German politicians were amongst the most vocal about this worry) that pushed Troika officials towards the "levy" approach, not a key part of the argument against it.
posted by Bwithh at 8:56 AM on March 17, 2013 [3 favorites]


Feel the wrath of the Confidence Fairies!
posted by scalefree at 8:58 AM on March 17, 2013



The "levy" approach is not really a levy/tax - more of a compulsory mass debt for equity swap.

There hasn't been a bank run situation (yet) either (see Guardian FAQ)

This a desperate measure and a deeply alarming situation for Cypriots especially, but much media reporting / Troika public communication has not been very on the ball, which doesn't help
posted by Bwithh at 9:02 AM on March 17, 2013 [2 favorites]


Is it just* bank accounts? Seems incredibly regressive if they don't take percentages of people's stock shares held in brokerage accounts.


I'm not sure what you mean? These are basically different entities from the sort of custodial accounts that would hold shares in assorted public companies. That wouldn't be in the bank, and the bank isn't (supposed to be) using those shares as collateral to purchase other earning assets.

If you mean people who own shares in the banks? Well basically people are being given shares in exchange for their "contribution" to the levy, so from a functional perspective they are taking the shares of the bankholders. I've not seen what the level of dilution for existing shareholders is, but I'd imagine it is very very high.
posted by JPD at 9:05 AM on March 17, 2013 [1 favorite]


I look forward to the rash of stories about Cypriot ministers, bankers and their families who in the last week or so suddenly felt the need to have ready cash on hand or to invest somewhere overseas.
posted by biffa at 9:05 AM on March 17, 2013 [2 favorites]


This is a key part of the rationale (German politicians were amongst the most vocal about this worry) that pushed Troika officials towards the "levy" approach, not a key part of the argument against it.

Yes. Obviously, but then I don't understand why you don't only force the "levy" onto the 100k+ crowd at a higher rate and leave the smaller, primarily Cypriot account holders whole.
posted by JPD at 9:07 AM on March 17, 2013 [1 favorite]


It's terrible policy whether you hit only 100k+ holders or everyone. Terrible.
posted by Justinian at 9:09 AM on March 17, 2013 [1 favorite]


Yeah, Bwithh's link, despite having a few "OMG OBAMA TAKIN' THE GUNZ" ads, is correct that the depositors are compensated with shares in their bank. How useful that is to anyone is something I haven't found discussed much.

From the Financial Times (sorry, paywall):
Cypriots hit by the levy will be granted shares in their banks of equivalent value to their losses, something Mr Sarris said he believed would give depositors an incentive to stay put.
posted by kiltedtaco at 9:10 AM on March 17, 2013 [1 favorite]


Also calling it a debt for equity swap is maybe missing the forest for the trees. 1) an actual D/E swap like this is not compelled by legislative fiat 2)Depositors and Debtholders are not the same thing.

It's terrible policy whether you hit only 100k+ holders or everyone. Terrible.
I would have limited issue with a bail in of 100k+ holders and the debt holders. That's basically what happens when a bank goes bad. It happens.
posted by JPD at 9:11 AM on March 17, 2013


JPD, I'm saying that if you take 6.75% of people's wealth that is held in savings and checking accounts, but 0% of their wealth that is held as shares of stocks in corporations, then you are taxing the poor way way more heavily, on a percentagewise basis, than you are taxing the rich.

So I'm asking if they're really not touching people's stock holdings.
posted by Flunkie at 9:12 AM on March 17, 2013 [2 favorites]


The equity is basically impossible to value because you don't really know what happens to the deposit franchises, and Cyprus as an offshore banking center for Russia et al. is now dead.

Incidentally I guess Latvia is now the destination of choice for those funds.
posted by JPD at 9:13 AM on March 17, 2013 [1 favorite]


A big part of the Cyprus mess is that a lot of the money on deposit there is dirty money. There's been some agitation to have a private investigation into how much money laundering is really happening in Cyprus, but I don't think there's been any report as of yet. As much as 35% of deposits may be from Russian origin. Not all of that is money laundering, of course, but since Russia is not in the eurozone the rest of the European nations are not so enthusiastic about bailing out Russian depositors.
posted by Nelson at 9:15 AM on March 17, 2013 [8 favorites]


No they are not, but that's not how the mechanics of this work. Those shares aren't held in the banks, so there isn't some legalistic argument for bailing them in.

Yes, it is terribly regressive. Just that its not a levy on property to fund a bailout, it is a bail in via a debt for equity swap for bank account holders.
posted by JPD at 9:16 AM on March 17, 2013


Like I already said above, overall, the deal isn't that bad; it could have been much worse in fact. The problem is that it is completely academic in the economic sense, as if assuming that all actors will behave rationally. Even for those that believe that it's not a bad deal, the problem now becomes what everybody else thinks: if a decent enough portion of depositors are inclined to reduce/zero out their deposits when the banks open back up, everybody's screwed. That's what's monumentally stupid about this...
posted by costas at 9:22 AM on March 17, 2013 [1 favorite]


I don't want to make it sound like I'm all in support of this, but the quote from the finance minister in the post is kind of sketchy and out of context. In full (FT again):

“I am not happy with this outcome in the sense that I wish I was not the minister that had to do this,” Mr Sarris said. “But I feel that the responsible course of action of a minister that takes an oath to protect the general welfare of the people and the stability of the system did not leave us with any [other] options.”

Also, where's Cyprus' equivalent of the Federal Reserve's H.8 aggregate bank balance sheet?
posted by kiltedtaco at 9:30 AM on March 17, 2013


$100 bills in your hand have just been declared to be worth somewhere between 7-10% more than those "deposited" and "stored" in a bank.

Since the interest on savings accounts is basically 0%, this seems guaranteed to start bank runs.
posted by 445supermag at 9:44 AM on March 17, 2013 [10 favorites]


Also, where's Cyprus' equivalent of the Federal Reserve's H.8 aggregate bank balance sheet?

you can get it from the ECB
posted by JPD at 9:52 AM on March 17, 2013


you can get it from the ECB

Neat, I guess that should have been obvious. The Aggregate Balance Sheet and the Cross-border Positions reports are nice references. Bank debt totals €1.7bn, so enough to make a dent in the €5.6bn the haircut would take, but not enough to replace it (not that anyone was claiming that). Domestic deposits are ~€72bn, €16bn are "other euro-area", mostly financial institutions and Greek depositors, and €32bn for Non-EU residents/institutions (not broken out by country). So one can at least see the motivation in trying to reclaim some money from the foreign depositors, since they are such a big slice of the deposits, rather than raising the money from purely domestic sources like taxes. (ignoring the regressiveness/bank run arguments for just a second.)
posted by kiltedtaco at 10:53 AM on March 17, 2013


This seems like a great solution, and a model going forward, though banks that are predominantly used for tax havens and money laundering should not generally be bailed out in the same way as banks used for legitimate businesses.

1. Deposits are bank liabilities, so insolvent banks can't pay them all.

2. Richer account holders should take a larger portion of of the losses than middle-class account holders.

3. Indeed ideally small accounts would be exempt, but barring that, they should receive equity for their losses. (Here I'd say the small account margin is something like 20k, not 100k.)

4. If you're going to make a move like this, you have to do it all at once and leave the institution in a position to be clearly solvent going forward, so depositors reasonable and unreasonable alike will think the haircuts are over.

Auschwitz this isn't. There are Cossacks rising in Russia and fascists gaining power in Greece. A 6.75% haircut is well-worth the price of preventing that, especially if it's mostly being paid by actual gangsters! The US and Ireland would both have been lucky to get this kind of bailout at those terms!
posted by anotherpanacea at 10:57 AM on March 17, 2013 [1 favorite]


It seems a pretty rough solution to me. Its essentially an arbitrary tax on people who have saved money rather than spent it. Its not like there is some great alternative to keeping money in a bank if you have to save for something, for example, if you are saving for a deposit on a house.
posted by biffa at 11:28 AM on March 17, 2013 [7 favorites]


Bankraub auf Zypriotisch
posted by 445supermag at 11:56 AM on March 17, 2013


Its essentially an arbitrary tax on people who have saved money rather than spent it.

Well, it's not arbitrary, but yes, it is a tax on savings. The alternative is an arbitrary tax on spenders to repay savers. Since the majority of those savings are (a) foreigners and (b) money launderers, I don't worry so much about taxing these savers.

It would be nice if, for instance, local depositors below a certain threshold were completely exempt. But that would look more arbitrary, and the rates would be much higher.

Its not like there is some great alternative to keeping money in a bank if you have to save for something, for example, if you are saving for a deposit on a house.

The best taxes are the ones that are least distortionary because there's no alternative to the taxed activity. So again, this looks like a good thing to me.
posted by anotherpanacea at 12:41 PM on March 17, 2013


[Quote]: And the Russians? The reason small depositors have been hit is that the losses inflicted would be much bigger if a) only large deposits b) only non-EU deposits were haircut. The data on Cyprus deposits is here (MUMs = Monetary Union Members). I would guess the thinking is that 10% is seen as a cost of doing business when it comes to money laundering, but 30% would probably finish Cypriot banking for good. If the infliction of losses on small depositors has a purpose, it’s probably to reassure the Russians that they are not being discriminated against.
posted by DreamerFi at 12:51 PM on March 17, 2013


The best taxes are the ones that are least distortionary because there's no alternative to the taxed activity.

The alternative to keeping your money in a bank is to not keep your money in a bank.
posted by Justinian at 1:53 PM on March 17, 2013 [2 favorites]


Krugman: "It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying 'time to stage a run on your banks!'"
posted by chalkbored at 2:32 PM on March 17, 2013 [1 favorite]


Cypriot Bailout Sends Shivers Throughout the Euro Zone (NYT):
Europe’s decision to force depositors in Cypriot banks to share in the cost of the latest euro zone bailout has sparked outrage in Cyprus and fears that a run on deposits over the weekend might spread to larger countries at risk like Spain and Italy.

[...] The government also extended a bank holiday that was put in place to try to stop a run on the banks. The holiday was supposed to end Monday night. Now, banks will not be opening their doors Tuesday, as planned. There was talk that they might not open Wednesday, either.
posted by autopilot at 2:34 PM on March 17, 2013


The alternative is an arbitrary tax on spenders to repay savers.

The alternative is everyone gets to pay, spenders and savers. Was there a need for an immediate levy rather than negotiate something that could be paid over time, ie a rise in income tax?
posted by biffa at 2:38 PM on March 17, 2013


Jesus Christ No!

Those that think, "Well, this is making the best out of a bad situation, it's not that bad," are dead wrong. This is beyond reprehensible.

Why are the banks failing? The banks have too much debt and their equity is worthless. So their solution is to keep their foreign (nondeposit) debt and take a haircut on bank deposits. This isn't a debt to equity swap because the equity will be worthless -- this is a haircut on deposits while keeping all other debt, full stop.

The level of injustice for someone living in Cyprus to have their bank account stolen to pay off foreign creditors is one of the stupidest things you could do in the Eurozone. Why the hell should a Cypriot who spent their entire lives saving money have over 6% of their money stripped away because they did the prudent thing and put it in a savings account, while the foreign creditors not get completely wiped out? Capitalism is predicated on risk and reward. Without punishment for imprudent risk, namely investing in a country/banks that cannot pay off their debts, the markets cannot correct. The party that must be punished are parties such as German banks lending money to banks/sovereigns who cannot pay their debts back. Foreign investors should know better, they have the financial expertise to make good decisions, your average Cypriot bank saver does not (nor do they have good alternatives to putting their money in a bank account).

It's ridiculous that it's Germans talking about prudence, when they're the ones who are actually profligate here (seeking high interest rates that are not properly risk-priced). It's especially offensive that they're now not only demanding to be first in line, but acting like the strict parent.

The proper way to recap is to convert all non-deposit debt into equity, and for the central bank to bail the rest out. Doing anything else is asking for bank runs.

The line between saving in banks and saving in short-dated government securities is effectively zero. A haircut on all bank is functionally similar to a sovereign default. This is going to encourage all the wealthy people (and not-so-wealthy) to move the money from banks into short-dated government securities.

I don't have any money in Europe, but if I did, I'd be pulling all the cash out of Italian/Spanish bank ATMs and putting it into several safe deposit boxes. Rich people can move all their money from banks into short-dated eurobonds. It may sound horribly self-defeating to advocate this as a prudent position, as it will create bank runs if everyone does this, but as an individual, the Eurozone's leaders has given the average person the middle finger here. If they actually go through with this, I cannot trust the ECB/European-leaders/etc to make the right decision now, nor should you. I cannot rationalize why an individual person in Spain/Italy should not be pulling all their cash to put into safe deposit boxes right now, beyond some sense of civic duty, as deposit insurance has just been announced to be worthless in the Eurozone.
posted by amuseDetachment at 2:46 PM on March 17, 2013 [12 favorites]


Was there a need for an immediate levy rather than negotiate something that could be paid over time, ie a rise in income tax?

The bailout was (and had to be) half the size of Cypriot GDP. You can't pay that back with income earned in country. Plus, they get equity in exchange so if the banking sector improves they'll get their money back.

Now, if Cyprus or the ECB could tax the income of Russian gangsters and global tax cheats, that would be different.

The alternative to keeping your money in a bank is to not keep your money in a bank.

Or not in a Cypriot bank, at least: so either put your money in a solvent, non-corrupt bank, or pay the money launderers tax.
posted by anotherpanacea at 2:46 PM on March 17, 2013


The government also extended a bank holiday that was put in place to try to stop a run on the banks. The holiday was supposed to end Monday night. Now, banks will not be opening their doors Tuesday, as planned. There was talk that they might not open Wednesday, either.

"If we just keep quiet long enough, maybe they'll go away."
posted by scalefree at 2:55 PM on March 17, 2013


I keep thinking that maybe this is some game, like maybe SimEuroZone, and the player has a good save game and is bored and drunk and saying "what the fuck! let's bring in Godzilla! And a Meteor! This will be so cool to watch them all be crushed, and burned!"

But no. There is no save game, there's no reload.
posted by seanmpuckett at 3:02 PM on March 17, 2013 [5 favorites]


"The proper way to recap is to convert all non-deposit debt into equity, and for the central bank to bail the rest out."

Sorry for the questions, but I'm really confused by everything about this situation. Are you saying the Cypriot banks should swap their Greek bonds for shares, and the (European) central bank should bail out the deposit holders? Then the banks would fail, the bond holders would lose their money, but the average Cypriots would still be solvent?

If I'm understanding it right, that would be sort of a half-Iceland, because the foreign (Russian) deposit holders would get bailed out with the Cypriots. If they did a full-Iceland they'd let the banks fail and only reimburse EU deposit holders.
posted by Kevin Street at 3:05 PM on March 17, 2013


Kevin Street:

Cyprus is inexorably linked to Greece, the point where you can say they're pretty much the same economy, but with some firewalls.

Germans were profligate here because they mispriced Greek debt. By mispricing the entire economy of Greece for years, it created a situation that is untenable for Cypriot banks.

Banks in Cyprus will invest in Greece, as they've always had a strong relationship. Without German banks getting involved and investing large sums of money in Greece, Cypriot banks would not have failed as readily. German banks simply had too much money to invest, and were competing with Cypriot banks to offer lower interest rates and supply their economy with an order of magnitude more money than Cypriot banks ever could. By doing so, they've pretty much forced the Greek economy into failure, no different than a payday loan shark. The Cypriot bank is like a brother to a customer of that payday loan shark. The brother has lent money and will now not receive his money back. To add insult to the injury, the payday loan shark (Germany) is blaming the brother. What. the. fuck?

The Russians are irrelevant here and a sideshow. In a just world, Russian depositors should get a haircut as well, while leaving Cypriot citizens in full. Iceland did something similar with UK depositors and had stellar results. However, it's not so simple. In the context of economic history, it's very important for Russians deposits to remain fully intact. Iceland is a different situation in that they have their own currency and issue their own sovereign debt. The Eurozone is linked with many countries, and defaulting on foreign deposits has implications for other countries. If Cypriot banks default on Russian deposits, wouldn't a Russian that held money in Spanish/Italian banks start getting a little panicky?
posted by amuseDetachment at 3:15 PM on March 17, 2013 [4 favorites]


Yes, I see what you mean. So what would the best solution be here?
posted by Kevin Street at 3:20 PM on March 17, 2013


Defaulting, probably.
posted by Justinian at 3:23 PM on March 17, 2013


All foreign debt that the Cypriot bank owes (probably to the ECB and a minority that is German banks and insurance companies) should get completely wiped clean and converted to equity. All depositors should remain intact up to a reasonable level, in many countries, this is between $250,000 to $1,000,000 today. The rest might get a haircut for putting their money in badly managed banks (depending on European's appetite for market dislocations -- many countries fully backed bank deposits to an unlimited amount during the economic crisis).

Remember, when people talk about refusing to bail out banks, nobody is saying that your average citizen's bank deposits should get cleaned out. Usually, refusing to bail out banks are about non-deposit bank debt. Defaulting on deposits is objectively bad, when the ECB and European finance ministers do something this boneheaded, that has serious repercussions on the confidence of the people at the helm.
posted by amuseDetachment at 3:30 PM on March 17, 2013 [2 favorites]


I mean, jesus, look at this incredible quote from the first link:
Last year, the euro area took what officials called a unique step to ask Greek bondholders to absorb losses.
The whole point of the interest rate you get on bonds is that there is some risk of losing money! Bondholders absorbing losses should be among the first steps when the issuer can't pay debts. Otherwise you're privatizing the profit and socializing the risk.

If Cyprus can't pay its debts, the bondholders should lose the money. That's how bonds work.
posted by Justinian at 3:30 PM on March 17, 2013 [7 favorites]


"All foreign debt that the Cypriot bank owes (probably to the ECB and a minority that is German banks and insurance companies) should get completely wiped clean and converted to equity. All depositors should remain intact up to a reasonable level, in many countries, this is between $250,000 to $1,000,000 today. The rest can get a haircut for putting their money in badly managed banks."

I get what you're saying, and it makes a lot of sense. But I guess that would send Greece back over the edge as well? So maybe you'd have to do the same thing to both countries.
posted by Kevin Street at 3:36 PM on March 17, 2013


Justinian:
Well to play a little devil's advocate. The reason the ECB was avoiding defaulting on Greek debt was precisely what Cyprus is facing now. A small number of that Greek debt is held by Cyprus. When Greece defaults, Cyprus defaults as well.

The injustice here isn't just that the market is not functioning properly because Greek debt hasn't gone through the process of real default. One can argue that Greece's bonds should be defaulted first (and I would agree, so would history all the way back to the concept of jubilee), and Cyprus' banks should bear bankruptcy while protecting their depositholders.

The real injustice is that the bad investor here isn't Cypriot citizens. The bad investor here is German banks. Why should German citizens not face a 6% haircut on their bank savings? Why is it just Cypriot citizens? Why is Greece saved to a point where German banks and its citizens are okay while Cypriot banks and its citizens face a deposit haircut? That's fucked up. I'm not so sure a Spaniard and Italian can have full confidence that they're not next.

Kevin Street:
Cypriot banks defaulting will not negatively affect Greece's banks in a direct way. Cypriot banks owns debt from Greece. It's like if you had a home loan from a Cyprus bank, and the Cyprus bank defaulted. You wouldn't really be affected, you still have the home loan. Greece should refuse to pay their debts to Cyprus, but they should also refuse to pay their much much larger debts to Germany. However, no matter your opinion on whether Greece should default, it's ridiculous that Germany would claim that Cyprus is being reckless with their spending and their everyday citizens should face a 6% loss on their bank deposits, when German banks were the ones that made the idiot decision to invest in Greece (whereas Cyprus has always had a strong relationship with the Greek economy).
posted by amuseDetachment at 3:42 PM on March 17, 2013 [5 favorites]


The level of injustice for someone living in Cyprus to have their bank account stolen to pay off foreign creditors is one of the stupidest things you could do in the Eurozone.

From the Eurogroup Statement on Cyprus:
These measures include the introduction of an upfront one-off stability levy applicable to resident and non-resident depositors. Further measures concern the increase of the withholding tax on capital income, a restructuring and recapitalisation of banks, an increase of the statutory corporate income tax rate and a bail-in of junior bondholders.
There are essentially no "foreign creditors" being paid off. As discussed already, there is very little non-deposit debt, and that which exists looks like it's going to be converted to equity anyways.
posted by kiltedtaco at 3:44 PM on March 17, 2013 [1 favorite]


The Russians are irrelevant here and a sideshow.

Russian Navy to send permanent fleet to Mediterranean
posted by 445supermag at 3:47 PM on March 17, 2013 [1 favorite]


kiltedtaco:
That line was also in the bloomberg article, with the next line in the article saying, "It didn’t specify whether bank or sovereign bond holders could be affected." It's a nice way of saying "junior debt" is so vague as to be worthless. Even if Cyprus banks have $1 in senior unsecured debt, that should default 100%. They do have a huge foreign bondholder, namely, the ECB.

If you look at the history of bank bailouts in the Eurozone, you'd be pretty confident German banks holding bonds in Cyprus' banks and Cyprus' sovereign debt get paid out in full, while the average citizen in Cyprus gets screwed. In this case, it's a little more brazen with money being stolen out of savings accounts.
posted by amuseDetachment at 3:58 PM on March 17, 2013 [1 favorite]


Even if Cyprus banks have $1 in senior unsecured debt, that should default 100%.

Sure, whatever, but if it's $1, it really doesn't matter other than "The Principle!".

They do have a huge foreign bondholder, namely, the ECB.

I gave a link above to the aggregate balance sheet of Cypriot banks. Debt securities issued totaled €1.7bn (Jan 2013), a fraction of the "haircut" amount. If you show me where the huge ECB bondholdings are lurking, I'll believe you.
posted by kiltedtaco at 4:35 PM on March 17, 2013


If Cyprus can't pay its debts, the bondholders should lose the money. That's how bonds work.

It's also how dominoes work. The problem with that approach was that a lot of those bonds were held by banks in other European countries. If the bonds defaulted (or took a loss) it could have made a lot of those banks insolvent.

Perhaps that how you think bonds should work; perhaps it's also how they should work. But if it had actually happened that way it could very well have begun a full-scale banking melt down in Europe.

Which may still happen.
posted by Chocolate Pickle at 4:37 PM on March 17, 2013


Another point: if there is a full-scale sovereign default by Cyprus, it's going to raise interest rates for everyone else in the Euro-zone -- and that would set off the rest of the full-scale depression that they've been teetering on the edge of for four years.

The problem is the Euro -- but the leaders of Europe don't want to lose that, because it means the unification process will have failed. If everyone goes back to national currencies, you can kiss the whole unification program good-bye.
posted by Chocolate Pickle at 4:41 PM on March 17, 2013


Every time it looks like things are turning around, the ECB does something stupid to fuck everything up again. If insured deposits aren't really insured in Cyprus then they're not really insured anywhere else either. If they can do a "one-off" levy one time, they can do it a second time, they can do it in any country needing a bailout - and half the Eurozone is on continuous bailout life support and will be for the foreseeable future. The ECB has just shot to shit all the fragile confidence that they belatedly brought about with their bond-buying program last year. They are idiots.
posted by moorooka at 4:47 PM on March 17, 2013 [7 favorites]


1. On Tuesday, March 19, immediately after the holiday weekend, one of the two banks in crisis would cease to operate, since the European Central Bank, following the decision already taken, would terminate the provision of liquidity. The second bank would suspend its work, and neither could avoid collapse. Such a phenomenon would instantly lead 8.000 families to unemployment.

2. The State would be obliged to compensate depositors in response to the obligation regarding guaranteed deposits. The capital required in such a case would amount to about 30 billion euros, which the State would be unable to pay.
Is that really how the Euro banking system works? You can deposit money cross-borders but deposit insurance is all underwritten by the local state? If this were true in the US, Delaware would be in a heckuva lot of trouble....
The deal calls for the banking sector to shrink substantially by 2018.
As we say in the US: Mission Accomplished!
posted by ennui.bz at 4:51 PM on March 17, 2013 [1 favorite]


Or not in a Cypriot bank, at least: so either put your money in a solvent, non-corrupt bank, or pay the money launderers tax.

This seems to imply the Cypriot banks got in trouble because of the money laundering activities. This is not correct. They've gotten in trouble because of the non-loan side of their assets. Like the part of the business 5 years ago we all would have agreed was non-shady. That's sort of the irony here. Blame Basel.

Yes the debt should be swapped for equity, but there is only like 1.7 bil in debt from the banks. Not enough. There has to be a better solution than this, but just bailing in the debt holders doesn't solve anything.
posted by JPD at 4:53 PM on March 17, 2013


Every time it looks like things are turning around, the ECB does something stupid to fuck everything up again.

The narrative I've seen is that the ECB thinks this is just as stupid as we do, but that its a coalition of the Germans, Finns and to a lesser extent the Dutch and Slovaks who drove through this deal. The IMF I guess has been agitating for this sort of thing for a while. Not that we should be surprised they want to do something dumb I guess.
posted by JPD at 4:55 PM on March 17, 2013


JPD: "Every time it looks like things are turning around, the ECB does something stupid to fuck everything up again.

The narrative I've seen is that the ECB thinks this is just as stupid as we do, but that its a coalition of the Germans, Finns and to a lesser extent the Dutch and Slovaks who drove through this deal.
"

Or maybe not: Germany would have protected insured deposits: Schaeuble
posted by chavenet at 5:07 PM on March 17, 2013


The whole thing confuses me.
posted by Kevin Street at 5:10 PM on March 17, 2013


In order to save €6-7 bn, which was initially meant to be part of the loan, this measure will cost significantly more in terms of confidence in the banking system of the periphery (and thus, the centre). Deposits in Europe up to €100,000 or equivalent are protected if a bank goes bust; the ECB has been advertising the fact in various countries in order to increase stability and all this is lost for the princely sum of 7 billions.
posted by ersatz at 5:11 PM on March 17, 2013


Or maybe not: Germany would have protected insured deposits: Schaeuble

Its very he said she said at this point. The FT version of the story - which is paywalled - basically says the germans didn't care how the axe fell, just so long as there was a large bail-in.

Schaeuble can say whatever he wants - the fact remains the Germans wanted the bail-in.
posted by JPD at 5:25 PM on March 17, 2013


But if it had actually happened that way it could very well have begun a full-scale banking melt down in Europe.

If less than 10billion euros started a domino effect banking collapse in Europe then the whole thing is a giant house of cards anyway. Because that's chump change in the grand scheme of things. Apple could pay it in cash tomorrow and not even notice.
posted by Justinian at 5:26 PM on March 17, 2013 [1 favorite]


Its not the quantity, its that you are telling people the ECB won't protect deposit insurance.
posted by JPD at 5:30 PM on March 17, 2013


No, deposits up to a certain (relatively small) level should be insured. But bondholders are not depositors. This is being done so that bondholders don't take a hit, at the expense of depositors.
posted by Justinian at 5:33 PM on March 17, 2013


oh sorry - I read your quote out of context.

Yes, the bondholder can handle to loss and should.
posted by JPD at 5:36 PM on March 17, 2013


BTW - it looks like the terms might change so that the under 100k crowd takes a 3.5% haircut - which is less than the interest rate on savings accounts - so still bad optically/psychologically, but economically maybe not terrible?
posted by JPD at 5:40 PM on March 17, 2013


Cyprus is more like Iceland than Ireland.

Economically, sure, but Cyprus is a lot like Ireland in a different way. It's a small island that has been partially annexed by a more powerful country, where your religious beliefs dictate which side of the conflict you are on.
posted by foobaz at 5:51 PM on March 17, 2013 [1 favorite]


It's the principle of the thing, JPD. It's the bondholders who should be eating this. All of it.
posted by Justinian at 7:12 PM on March 17, 2013



It's also how dominoes work. The problem with that approach was that a lot of those bonds were held by banks in other European countries. If the bonds defaulted (or took a loss) it could have made a lot of those banks insolvent.


We're talking about Cyprus here. Not exactly a large economy. One of their sources of income is civil marriage licenses for citizens of nearby post-Ottoman countries whose love doesn't fit domestic theocratic criteria.

Any bank that could topple because of a Cypriot default is bound to topple because of some other shoe dropping anyway.
posted by ocschwar at 7:20 PM on March 17, 2013 [1 favorite]



The problem is the Euro -- but the leaders of Europe don't want to lose that, because it means the unification process will have failed. If everyone goes back to national currencies, you can kiss the whole unification program good-bye.


So fucking what?

Unification should never have been deemed an end in and of itself. Unification had a purpose: PEACE. And how exactly is that working out now?
posted by ocschwar at 7:22 PM on March 17, 2013 [1 favorite]


It's the bondholders who should be eating this. All of it.

How many more times does this need to be repeated? There are not enough bonds to wipe out. There are only €1.7bn bonds. They need €5.6bn from the haircut. You can't just magically wipe out bondholders three times over. Some of the bonds will be wiped out, but there just aren't any details yet.
posted by kiltedtaco at 7:22 PM on March 17, 2013


Unification had a purpose: PEACE. And how exactly is that working out now?

Well, it has been nearly seventy years since the last Europe-wide war. That's remarkably good; I don't know when there has last been such a lengthy interval of relative peace.
posted by Joe in Australia at 9:34 PM on March 17, 2013


Yeah, compared to WWI the last 4 years really haven't been that bad.
posted by Balna Watya at 10:22 PM on March 17, 2013


This is how you start a land war in Europe.
posted by valkyryn at 1:05 AM on March 18, 2013 [1 favorite]


This seems to imply the Cypriot banks got in trouble because of the money laundering activities. This is not correct. They've gotten in trouble because of the non-loan side of their assets.

I don't think this is true: it looks like the problem was deeply related to money laundering.

Cyprus banks took foreign assets and invested them in Greek debt. Greek debt! During the crisis! So when the Greeks did their haircut, the Cypriots were going to have to do the same.

They ended up at something like 7x leveraged to GDP. That's like borrowing from mobsters to bet on the horse races. They catered to the Five Flags crowd and now they're paying for it.

They've been offering outsized returns based on their speculation, which has drawn all sorts of dangerous money their way. Now depositors are going to share the losses. Sure: clean out the bondholders, but that's not sufficient to cover the banks' dirty dealings.
posted by anotherpanacea at 4:55 AM on March 18, 2013


That makes very little sense as an argument. If they were levered because they were borrowing lots of money or using the securitization market and then using that leverage to make risky loans and investments outside of Cyprus your argument might make sense.

But no - they were fully deposit funded. They took those deposits and bought the assets that the transnational regulators/Basel 2 says are the safest - sovereign debt. Now you can argue this is dumb, and that clearly the risk weighting for those assets >0. I think everyone agrees about that. But the only thing the money laundering did was increase their deposit balances.

From the position of size relative to GDP - not sure that's so relevant as to why they need a bailout rather than how a bailout can occur
posted by JPD at 5:25 AM on March 18, 2013


JPD, I'm pretty sure you know more about this than I do, but I don't understand your argument, and I feel like you're merely dismissing rather than considering mine.

But the only thing the money laundering did was increase their deposit balances.

See, this doesn't seem like an "only" to me: increased deposit balances look pretty relevant when that's how you're funding your speculation, regardless of the source. There's a difference between buying a lottery ticket with your own wages and buying one with money from a loanshark.

Cyprus offered two things that, say, German banks couldn't: support for corruption and high returns on investment.

From the position of size relative to GDP - not sure that's so relevant as to why they need a bailout rather than how a bailout can occur.

Agreed.

If they'd merely focused on honest depositors and safe investments (which arguably Iceland did, while Ireland has skirted the line) they wouldn't have had so much growth from a finance-oriented economy. So Cyprus banks took fast growth in exchange for looking the other way on both the liability-side and the asset-side, and Cypriot state and the Cypriot electorate didn't question that decision because they got a piece of the action.

If they'd sold the money launderers bonds, this would be a simple matter of giving the bondholders a haircut. But money launderers can buy bonds directly, so the only way for Cyprus to compete in that market is to trade on their deposit insurance while offering near-bond interest rates. Cyprus couldn't afford to back its deposit insurance with this much leverage, so they levied the accounts instead. Call it a one-time wealth-tax.

Again, if you compare this to the Irish response of nationalizing the liabilities, I have to say that this looks much superior. I suspect that the GDP-growth rate of Cyprus will be higher going forward than the Irish one, because they won't have a drag on the economy like the Irish do.
posted by anotherpanacea at 6:48 AM on March 18, 2013


honest depositors

I really don't get the obsession over the depositors here. If you want to create such a division, here's how I think they functionally differ:

Money laundering depositors: deposits must be returned on demand.
Non-money-laundering depositors: deposits must be returned on demand.

.... ?

Now, if you want to argue that the Cypriot banks specifically made risky investments so that they could maintain a high interest rate which would attract more deposits, specifically money-laundering deposits, then maybe you have a plausible line of causation, but a difficult one to prove. And there's the counterexample of Landsbanki, which did the same thing but with (presumably non-money-laundering) depositors in the UK. Didn't matter what the deposits were.
posted by kiltedtaco at 7:07 AM on March 18, 2013


Now, if you want to argue that the Cypriot banks specifically made risky investments so that they could maintain a high interest rate which would attract more deposits, specifically money-laundering deposits, then maybe you have a plausible line of causation, but a difficult one to prove.

That's exactly what I just argued! Now, here's some proof:

Cyprus had approximately $18 billion in Russian money on Friday, even as it has been doing hundreds of billions of dollars of business with them.
Cyprus attracted $119.7bn of Russian “investment” in 2011 while itself transferring $129.9bn to Russia the same year, equivalent to more than five times the island’s annual output, according to Global Financial Integrity, a US-based money laundering watchdog. Raymond Baker, GFI’s director, said the amounts reflected “round-tripping” of illicit funds exported from Russia to companies based in Cyprus. The funds then flowed back as legitimate investment.
These are Russian oligarchs using Cyprus's presence in the Euro to launder ill-gotten money and avoid Russian taxes. If you really think that's irrelevant, well, I disagree. Its bankers accept suitcases full of cash. Banking makes up 40% of GDP (double what is was before they joined the Euro) and half of that is Russian-owned. A lot of the domestic depositors are connected with the money laundering as well, ex-pats running Five Flags operations. I don't see why the ECB should bail them out at all, except to backstop Greece, Spain, and Italy.

And there's the counterexample of Landsbanki, which did the same thing but with (presumably non-money-laundering) depositors in the UK. Didn't matter what the deposits were.

I think this is very relevant! Iceland guaranteed domestic depositors but not foreign ones, and they've spent the last five years in court over it. Iceland breached its treaty obligations by discriminating on the basis of nationality, and they ended up paying for it. Cyprus avoids that neatly.
posted by anotherpanacea at 7:22 AM on March 18, 2013


See, this doesn't seem like an "only" to me: increased deposit balances look pretty relevant when that's how you're funding your speculation, regardless of the source.

Because they fundamentally weren't speculating. Speculating for a bank is funding high risk loans for dodgy projects at a high price (The Irish Banks), or funding yourself short-term through the capital markets and using that to buy higher yielding longer-dated assets (Northern Rock/Icelandic Banks).

The Cypriot Banks were buying sovereign debt using deposits, which under Basel II is so the opposite of speculating you don't even have to carry capital against it.

Now this fact is ridiculous, and that's why they need a bailout, but five years ago this was seen as "prudent"

Cyprus wasn't attracting foreign (AKA Russian) deposits because of the returns they were offering, they drew the deposits because they were willing to facilitiate, or at least turn a blind eye towards money laundering/tax fraud, etc, etc.

I mean there is no argument that these banks were filled with dirty money. All I'm saying is that the causes of the crisis are a bit less exciting than that.
posted by JPD at 8:14 AM on March 18, 2013


Again, if you compare this to the Irish response of nationalizing the liabilities, I have to say that this looks much superior. I suspect that the GDP-growth rate of Cyprus will be higher going forward than the Irish one, because they won't have a drag on the economy like the Irish do.

Ireland is a bad comparison. Ireland also has a massive property bubble overhang to overcome. It wasn't just the banks that were fucked up. I mean I'm not endorsing the solution the Irish used, I'm just saying comparing Ireland and Cyprus doesn't tell you much of anything.
posted by JPD at 8:17 AM on March 18, 2013


honest depositors and safe investments (which arguably Iceland did)

No - the big Icelandic banks basically turned themselves into massive overlevered hedge funds.
posted by JPD at 8:25 AM on March 18, 2013


The Cypriot Banks were buying sovereign debt using deposits, which under Basel II is so the opposite of speculating you don't even have to carry capital against it.

Well, I'm of the opinion that just because something is allowed doesn't mean it's prudent. So was most of the rest of Europe at the time! Greek debt was yielding 7% at some points, while safer bonds during the same periods had negative real returns! Prudence recommends caution, eh?

Cyprus wasn't attracting foreign (AKA Russian) deposits because of the returns they were offering, they drew the deposits because they were willing to facilitiate, or at least turn a blind eye towards money laundering/tax fraud, etc, etc.

But they also out-competed other money laundering destinations on rates and taxes! Without a depositor haircut, perhaps Malta and Latvia become more attractive to dirty money. With a depositor levy, those places look just as vulnerable as Cyprus.

No - the big Icelandic banks basically turned themselves into massive overlevered hedge funds.

See this is where my financial history is shaky. I've always been under the impression that the Icelandic banks were over-leveraged in foreign bonds, just like the Cyprus banks, and couldn't refinance. There was a carry trade issue, there, fueled by the central bank in Iceland.

I've always thought the Icelandic Three were less to blame than they would have been if they'd been soliciting laundered money (Cyprus) or acted as a massive tax haven (Ireland, Latvia.) The Icelandic banks got squeezed into the position of taking on excessive risk by a central bank trying to control inflation; Cyprus banks jumped in eyes open by actively facilitating the excessive deposits.
posted by anotherpanacea at 9:27 AM on March 18, 2013


See this is where my financial history is shaky. I've always been under the impression that the Icelandic banks were over-leveraged in foreign bonds, just like the Cyprus banks, and couldn't refinance. There was a carry trade issue, there, fueled by the central bank in Iceland.


You are conflating issuing bonds (or paper) - which is what Iceland was doing, and buying bonds - which is what Cyprus was doing. Ironically Iceland probably could have held on longer had they been soliciting dirty deposits rather than relying on other financial entities to keep rolling their funding.

The Cypriot bank holdings of greek debt predate the sovereign debt crisis, when those spreads over Bunds were measured in basis points. Its maybe a fair criticism to say they should have swapped out of them, but they didn't buy them attempting to chase extra yield. You could argue that had they sold at the bottom their problems would be even worse.

And I'm decidedly not saying that buying heaps of sovereign debt because it has a 0% risk weighting is prudent - I'm just saying its not some crazy speculative plan. It was sort of the done thing with excess deposits. I mean the Italian banks all own heaps of Italian government bonds for the same reason, French; French, etc, etc.

It was really the lack of taxes + a ramshackle anti-money laundering + a nice beach that led to it becoming the Russian domicile of choice.
posted by JPD at 9:39 AM on March 18, 2013


Cyprus : Problem on the Left Side of the Balance Sheet
Iceland : Problem on the Right Side of the Balance Sheet
Cyprus : Solvency
Iceland : Liquidity
posted by JPD at 9:40 AM on March 18, 2013 [1 favorite]


Build your own Cyprus bailout!

Makes it look pretty easy to avoid the levy on uninsured amounts by hitting uninsured accounts for 15%. I wonder if the underlying numbers are right.
posted by anotherpanacea at 9:41 AM on March 18, 2013


The Icelandic banks got squeezed into the position of taking on excessive risk by a central bank trying to control inflation

Ha Ha Ha. Nope. It was a bunch of dudes trying to get rich by rolling the dice thinking they had a put from the Central Bank if they crapped out. They were wrong. They are worthy of no compassion.

The Central Bank raising rates just enabled them to supercharge their plans because all of a sudden their debt became even more attractive to EU investors/savers.

Increasing rates is usually a good thing for deposit funded banks - net interest margin increases as deposits usually reprice more slowly than loans.

What Iceland and Cyprus have in common is that their issues were mostly caused by exogenous factors, as opposed to Ireland and Spain where the problems are (mostly) home made.
posted by JPD at 9:43 AM on March 18, 2013


Cyprus : Problem on the Left Side of the Balance Sheet
Iceland : Problem on the Right Side of the Balance Sheet


I liked this simplification, thanks.

That said: is there ever really a problem just on one side of the balance sheet? I always thought the problems happened when the two sides got out of whack. This seems doubly the case when you're messing with exchange rates: does the krona go down or do the pound and dollar go up? Well, both!
posted by anotherpanacea at 9:59 AM on March 18, 2013


Yeah, they sort of become recursive. Though historically it is much much easier for a solution to be found to a solvency crisis - because you actually have a little bit of time, and the only forced sale is really the forced capital raising - but if the actors behave decisively and aggressively you can usually plug the hole in equity that results from a decline in asset values w/out too much of debacle ensuing.

Liquidity Crises happen much much faster, and then the forced selling that happens as the bank is forced to de-lever usually exacerbates the problem because the value of all of the assets are pushed lower, making people even less confident in the values and the whole thing unravels quickly.

Pretty much everything that happened in '08 was the latter, not the former.
posted by JPD at 10:30 AM on March 18, 2013


I'm going to have to remember the 'haircut' euphemism. It's a great way of softening the blow of outright theft.

"Alright, stick 'em up! This is a robbery haircut!"
posted by mullingitover at 10:35 AM on March 18, 2013 [1 favorite]




The Cypriot bank holdings of greek debt predate the sovereign debt crisis, when those spreads over Bunds were measured in basis points. Its maybe a fair criticism to say they should have swapped out of them, but they didn't buy them attempting to chase extra yield. You could argue that had they sold at the bottom their problems would be even worse.

They've added to those initial positions substantially as they've grown. They've obviously been chasing yield; this is the part of your argument I still don't understand. They had to chase yield to get the foreign deposits! And with the foreign deposits, they've also gotten billions of dollars in foreign direct investment. Even after the levy and the bailout, they're coming out ahead!

Would you have been better off leaving your money in a bank in the United States or in Cyprus over the last five years?
The answer: You would have been better off in Cyprus, even after the bailout, when your money was “confiscated.” If you had 100,000 euros in a Cypriot bank account over the last five years, where the interest rate has averaged about 5 percent, you would have about 127,600 euros today. Even after the bailout, which would require you to give up 10 percent of your deposit — 12,760 euros — you would be left with 114,840 euros. The American bank? The $100,000 you deposited at Bank of America five years ago is about $105,100, at the going rate of about 1 percent interest a year.
posted by anotherpanacea at 9:56 PM on March 18, 2013


They've added to those initial positions substantially as they've grown

They've been reducing their exposures since 4Q2010. I don't think linking will work - but go the ECB website and and you can get quarterly holdings of Greek non-MFI Securities other than Shares - which is basically Greek Government debt.

From the same place you can see that from '09 - today their deposits actually shrunk. They basically peaked in Fall '08
posted by JPD at 5:24 AM on March 19, 2013




They've been reducing their exposures since 4Q2010.

I can't get the ECB's website to give me anything at this point. Seems like it's being hammered or has throttled access? 2010 was when Cyprus was downgraded by the S&P, so that makes some sense.

Still then there are two questions:

How were they funding their generous interest rates? 5% over the last five years is pretty crazy.

What caused the insolvency? They only had €5 billion Greek debt in 2011, so the haircut shouldn't have put them in the position to need twice that.
posted by anotherpanacea at 7:24 AM on March 19, 2013


Their cost of deposits was more like 3%, yield on their assets was like 6%.
posted by JPD at 7:33 AM on March 19, 2013


What caused the insolvency? They only had €5 billion Greek debt in 2011, so the haircut shouldn't have put them in the position to need twice that.

They only had 15 bil in capital though.
posted by JPD at 9:00 AM on March 19, 2013


This whole fiasco really makes me wonder if the EU is just playing a game with Russia to force Moscow to pitch in on the bailout. It's their money that's being bailed out after all.

Russians basically have a choice of losing some of their money, or all of it. With the vote today it looks like it's going to be all of it unless Moscow is willing to pitch in. It's got to be a bitter pill for them, since they'll be bailing out their tax dodgers.
posted by mullingitover at 2:04 PM on March 19, 2013






What Happened In Cyprus: An interview with Athanasios Orphanides (Governor of the Central Bank of Cyprus from 2007-2012)
posted by the man of twists and turns at 10:14 AM on March 28, 2013


Are they still on the revised deal where "Bank of Cyprus depositors with more than 100,000 euros could now lose up to 60% of savings"? Sounds far more reasonable.
posted by jeffburdges at 2:46 AM on April 5, 2013


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