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Sounds like they\’ve been sensible in Cyprus

Even the best-protected senior bondholders investing in Laiki Bank would see their holdings \”wiped out\”, Mr Dijsselbloem said.

\”Laiki bank will have to be resolved so yes, senior bond holders, along with the others, will basically be wiped out there,\” he said.

He said the Bank of Cyprus, the island\’s largest bank, needs to be recapitalised. \”The contribution to this recapitalisation must come, inevitably, from senior bondholders, junior bondholders, shareholders and, to some extent, we don\’t know to what extent yet, also from uninsured depositors,\” Mr Dijsselbloem said.

Quite. It\’s the normal bankruptcy procedure for a bank and there was absolutely no reason at all that they shouldn\’t have proposed/done this a week ago. Or a month ago, come to that.

28 thoughts on “Sounds like they\’ve been sensible in Cyprus”

  1. As you say; quite!
    Could somebody help out an enthusiastic amateur please: this appears to me to have been all about a couple of businesses going bust, albeit extremely large businesses relative to their host economies. As such, rather ironically, this latest Euro crisis isn’t anything much to do with the single currency at all.
    Am I completely off-beam here?

  2. So Much For Subtlety

    The question is why didn’t they do it a month ago? We are being ruled by the C Team. The B Team was too busy working in sociology departments across the EU to take the job.

    Rumour has it the Spanish government has called for a levy on their bank deposits too. They couldn’t be so stupid could they?

    In the meantime, let’s see if this calms Cypriots down.

  3. >Ironman

    Well it is a euro issue to the extent that the depositors do not have to exchange currency and so contributed to the growth of the Bank in Cyprus activity.

  4. The main stream media have been alternatively refering to this as a tax and also as a default on deposit obligations. Has anyone seen a sensible analysis.

  5. “Rumour has it the Spanish government has called for a levy on their bank deposits too.”

    Not as yet. Economic genius Nigel Farage has advised British citizens in all Mediterranean countries to withdraw their cash from banks, which may be what you have in mind. AFAIK, he does not control Spanish government policy.

  6. Dinero, thanks for the reply. However, there are opleny of ther offshore centres that aren’t Eurozone. So I think I am still searching.
    By the way, if anyone wants to tell me I’ve got it spot on, I am VERY willing to listen! (Big cheesy grin)

  7. So Much For Subtlety

    Luke – “Not as yet. Economic genius Nigel Farage has advised British citizens in all Mediterranean countries to withdraw their cash from banks, which may be what you have in mind. AFAIK, he does not control Spanish government policy.”

    Best advice anyone has given someone with a Club Med bank account in some time I would think. But is it responsible? I am in two minds. On the one hand my inner Marxist says the worse it is the better, and that the only solution to the EU is to burn it down. On the other hand, my inner middle class householder is appalled by the level of damage likely to be inflicted by a banking sector collapse across Europe.

    I am not sure what I had in mind but I read in El Pais:

    In response to plans to make Cypriot savers foot part of the bill for a bailout of its banking system, Economy Minister Luis de Guindos on Tuesday said that bank deposits of under 100,000 euros in Spain are “sacred.”

    I notice he does not say bank deposits over 100,000 euros are sacred. Farrange is right. Time to move any money in the Med to Germany.

  8. >Ironman

    Banks in Cuprus were large holders of Greek govt bonds.

    Holders of Greek Govt Bonds were forced to take a “haircut” as part of the latest rescue package for Greece.

    Banks in Cyprus lost a huge chunk of their asset base.

    So the euro-crisis can was being kicked down the road and cyprus is the next place it landed.

  9. > The Meissen Bison

    So depositors in Cyprus banks lent money to Ggreece and Greece is not paying it back

  10. The Meissen Bison
    Agreed, it was Greek sovereign debt that was impaired. However, isn’t that a little beside the point here. The banks’ insolvencies were triggered by debt impairments; they could have been any crap investments couldn’t they.
    Two other thoughts come to mind:
    1. Were those Cypriot banks really independant if they were so heavily taking one for the Euro team with Greek debt? Was this really capitalism?
    2. Nigel Farage does indeed sound like a bloody genius right at this moment.

  11. > Ironman

    If commercial banks go insolvent it does not follow that Cyprus leaves the euros that is a Government matter. On the other hand do you think the Cyprus banking system would have grown so much since 2004 if denominated in Cyprus pounds.
    The euro has lead to unprecendented flows of capital and of goods in some cases unbalanced.

  12. The reason they did not do use this plan one week ago is because they needed to show they are omnipotent and no matter what happens they will save us all. Simple concession strategy; cause outrage, make concessions, set precedent.

  13. ” Economic genius Nigel Farage…”
    Memory serves correctly, Farage is a trader & doesn’t pretend to be an economist.
    Takes his guide from that superb analogue number crunching machine, the market, rather than rely on economic theories that have never had any history of predicting anything, ever.

  14. Sigh.

    there was absolutely no reason at all that they shouldn[apostrophe]t have proposed/done this a week ago. Or a month ago, come to that.

    Two reasons: first, the Cypriots thought they had a chance to get a better deal out of the ECB. But the Germans vetoed that. Second, the Cypriots wanted to show Putin that they weren’t shafting the Russians of their own free will.

  15. Am I the only person who thinks that taking out the 100K plus depositors will also lead to lots of corporate failures? I know that there were lots of russians there, but 100K plus is the scale for mid-size companies. The Europeans should be offering special terms for businesses if they want to avoid making this debacle worse.

    The worry about hitting depositors above the deposit limit has historically always had this corporate component.

    This entire episode has reflected very badly on the ECB and the Eurogroup. While I dont think it will trigger a crisis, it makes bank runs far more likely when the PIIGS next have a crisis. I dont see how they could have done it differently mind you. (And I agree with PaulB on why we are here today rather than a week ago. All banking crises and the delayed resolutions are political (economic) in nature.)

  16. Senior bondholders surely include the ECB. Are they really going to allow themselves to be wiped out by Laiki?

    Tim adds: ECB might well own Cyprus bonds as collateral. But unlikely to own bank bonds. Unless they’re there as collateral. In which case it’s the bloke who posted the collateral who takes the loss, not the ECB.

  17. BiF

    All the stories I’ve seen suggest that the ECB has required (and the Cypriots complied) with the transfer of E9 bn of Laiki debts to go with the good bank to the BoC.

  18. Wot? Why on earth should BoC get lumbered with someone else’s bad debt? What is it getting in return?

  19. To , to evaluate everything here , if the euro didnt exist , a few small countries would have gone bust , devalued , taken appropriate measures and europe would be relatively prosperous. Small time hurt. But we now have the euro , and things are looking bleak for , as some suggest , decades , if the euro survives. This euro currency seems to be a common deniminator for most of Europes ills at the moment doesnt it ? There is a solution of course , but too many inflated ego’s depends on ‘the project’.

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