by Hesna Genay and Mike Mei – Chicago Fed Letter, Federal Reserve Bank of Chicago
Last year, Cyprus joined its neighbor Greece on the list of eurozone countries in financial crisis. Although Cyprus is one of the smallest economies in the euro area, following the announcement of the official financial aid package for Cyprus on March 16, 2013, bank investors in the rest of the eurozone suffered large losses. Analysis indicates that bank investors interpreted the Cypriot aid package as potentially forming a template for future eurozone bank restructurings, whereby bank investors would bear a higher fraction of the resolution costs.
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