Panicos Demetriades, the governor of the central bank of Cyprus, pressed for “urgent” legislation “relating to the reorganisation and recovery of the Cypriot banking system” in a crisis that threatened to spark a run on banks and to wipe out £1.7bn in savings held by Britons.
“This consolidation process will prevent the risk of bank failures and protect in their entirety all insured deposits up to the amount of €100,000 euros,” he said.
“It also creates conditions for the recovery of the banking system and guarantees jobs.”
Cyprus will divide Laiki into two entities, one will contain all insured deposits of under €100,000 and the other will be a “bad bank” with larger deposits, often Russian, subject to an asset recovery programme and substantial losses.
Apparently a 40% haircut. A bank goes tits up then the losses go, shareholders, junior debt, then senior debt and deposits. Them\’s just the rules.
And one great joy of their actually doing this will be that it substantially reduces the moral hazard of having that deposit insurance in the first place.
Sorry cheloviki, but uninsured deposits are uninsured deposits.