How about that? Depositor bail in works for bust banks

The Cypriot economy did not shrink by 20pc after the banks collapsed last March, as some feared. It did not even shrink by 8.7pc, as the Troika had expected. The final figure for 2013 has just come in at 5.4pc. The EU-IMF team has for once been confounded by success after vastly underestimating the damage of austerity in a string of countries.

It’s almost as if it’s the sensible thing to do. Those who have state insurance, those with deposits up to €100,000, get the state insurance. Those who do not don’t.

Iceland and Cyprus have done well, Ireland got screwed. And as for Greece…..

5 thoughts on “How about that? Depositor bail in works for bust banks”

  1. Well done Cyprus. New Zealand also has no guarantees for depositors. My only criticism of the Cyprus/NZ model is that it would be improved by being converted to the system advocated by Milton Friedman, Positive Money and others.

    Under the latter, banks cannot make the blatantly fraudulent promise to depositors that depositors are guaranteed their money back when in fact their money has been invested in NINJA mortgages, Greek government debt and similar cr*p.

    That is, under the Milton Friedman/PM system, depositors have a choice. First, if they want a 100% guarantee that they’ll get their money back, then NO RISKS are taken with that money. It’s simply lodged at the central bank, and depositors get little or no interest. Second, if depositors want to earn interest, they’re effectively asking to have their money invested or loaned on. And if that’s what they want, why should taxpayers bear the ultimate risk? People who invest in the stock exchange don’t ask to be rescued by taxpayers when their investments do badly. And if they did, they should be told of f-off.

  2. So Much for Subtlety

    I wonder if it is what they did so much as the certainty of what they did? Where there is a political solution, there is political uncertainty. In Ireland and Greece, no one can be sure what the governments of Europe will do. That reflects risk. That depresses confidence.

    Cyprus could, presumably, have done anything, but what they did is important not for what it is, but because it was simple, clear and everyone knew where they stood. It may be true that they could have done something else and got the same result, as long as it was simple, clear and certain.

  3. “That is, under the Milton Friedman/PM system …”: it’s noticeably similar to our old Savings Bank system. Well done, Milt.

  4. The depositor bail in was selective – the oligarchs had a week to withdraw their cash via Moscow. That ensured a) the ECB and Cypriot pols didn’t get spetsnazed, and b) said oligarchs remained happy to invest.

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