Econintersect: The much bally-hooed agreement to reorganize Cyprus’ largest banks has not proceeded to the point that banks in that country will be able to 
reopen today (Tuesday, 26 March 2013) as scheduled last week. The latest announcement Monday night from government officials has delayed the opening to Thursday. The slow progress in getting the Cyprus bank doors open again is not the only concerning development. There is fear that future bailouts in Europe will now include raids on deposits as part of the conditions for closing deals. Bank stocks in Italy and France took big hits in trading Monday.
Even when banks do reopen depositors will not have free access to deposits. There will be extraordinary capital controls, according to Reuters:
Little is known about the restrictions on transactions that [Cyprus president] Anastasiades said the central bank would impose, but he told Cypriots: “I want to assure you that this will be a very temporary measure that will gradually be relaxed.”
Capital controls, preventing people moving funds out of the country, are at odds with the European Union’s ideals of a common market but the government may fear an ebb tide of panic that would cause even more disruption to the local economy.
Contrary to reports quoted in GEI News 24 hours ago, the second largest bank in Cyprus, Laiki Bank aka Cyprus Popular Bank, which was largely government owned, will be shut down and approximately 30% of the deposits from accounts balances in excess of €100,00 will be seized to raise about €4.2 billion of the €5.8 billion that bank depositors will be providing to fund the rescue.
Insured deposits up to €100,000 will be returned to depositors.
The country’s largest bank, the Bank of Cyprus, will have depositor accounts contributing the additional €1.6 billion.
The Bank of Cyprus will survive but as a much smaller entity after essentially being divided into a “good” bank with small depositors (€100,000 billion and less), and a “bad” bank containing all larger accounts which will be subject to the settlement levy with about 70% returned to depositors and the bank “wound down”.
The Russian government reaction to the confiscation of large deposits which are largely Russian seems not clear. Der Spiegel has an article that says Russian state television is critical, even irate:
The verdict of Russian state television on Europe’s effort to save Cyprus was damning. The last week “will enter the history books of the EU as a destructive one,” said Dmitry Kiselev, the presenter of the popular news program Vesti Nedili on the Rossiya channel.
Kiselev heaped criticism on the forced levy to be imposed on bank deposits in Cyprus. He said the last time a Western European government proceeded so recklessly was when Adolf Hitler expropriated the Jews.
Reuters paints a different picture:
Russia signaled it would back the bailout even though it would impose big losses on Russian depositors, who by some estimates may hold a third of all deposits in Cypriot banks.
President Vladimir Putin ordered officials to restructure a loan Moscow granted to Cyprus in 2011 – having rejected Nicosia’s request for easier terms in crisis talks last week.
One possibility is that Russia is displaying one face for domestic purposes and another for the rest of the world.
Sources:
- Cyprus banks to stay closed for days (Peter Spiegel and Joshua Chaffin, Financial Times, 25 March 2013)
- Cyprus banks remain closed to avert run on deposits (Reuters, 25 March 2013)
- New Cyprus Solution (GEI News, 25 March 2013)
- Cyprus Fallout: Moscow Accuses Euro Zone of Theft — and Worse (Benjamin Bidder, Spiegel Online, 25 March 2013)
