cyprus taxing bank accounts 10%

[rennigade]

I stopped at this. Honestly, posting garbage like this is why no one responds. Even IF it WAS a possibility, do you actually think Bernanke would make this statement? There is absolutely 0% chance Bernanke would ever make this statement even if he thought it true.

The internet - synonym for "propaganda"

I stopped when I saw who was posting. This is coming from a freakin slumlord. I dont even read what that dude posts anymore.

[siggy_freud]

This option became and easy target because of the reputation Cyprus carries as being a tax/money shelter for other countries. Seems like now they're talking about only taxing foreign deposits. Russian oligarchs have huge sums of money stored in Cyprus being sheltered, and the EU wants some of it.

[bUU]

It was a stupid move on Cyprus' part to even suggest such an action

Cyprus actually didn't. Rather, it came out of three-way negotiations, between the EU, the IMF and the Cypriot president. Cyprus, itself, rejected the bank deposit levy provision. It is a requisite aspect of negotiations between agents of democratic entities that, short of suspension of constitutional authority, agreements be reviewed and ratified by the respective government through its defined procedures. Anyone who attributes an unratified decision of a negotiator to the entity that negotiator represents is failing to acknowledge a fundamental aspect of the negotiation.

[kv968]

Cyprus is partcular in that it's banks have issued little or no bonds. The shere volume of foreign deposits made debt financings in captal markets unnecessary (the banks were already completely outsized to the rest of the cypriot economy with foreign deposits alone). Depositors, especially large accounts, are essentially the banks bondholders. Nobody would be troubled if bondholders in an insolvent business took a writeoff.

The big mistake here, and the public perception nightmare, came from cypriot insistance (contrary to ecb demands) that all accounts take a hit, thereby renegging on protecting inured accounts. They did this to either try to prevent a run by foreign holders or because they are corrupted by these foreign holders or both.

Look at "Plan B" that they are reaching agreement on with ecb now (very similar to ecb initial proposals). Accounts under 100k (and therefore most ordinary cypriot savings) are protected, banks are restructured isolating equityholders and large deposits (above insured amounts -ie. bondholder-like investors in a seperate entity with the bad debt so that those investors take a capital loss. Ecb loan comes in and allows cypriot government to honour deposit insurance up to 100k and prop up post restructuring failed banks.

Ths is only unerving on optics, not substance. Had they always maintained that the state would honour deposit insurance (as the ecb had wanted) none of this would have been particularly attention worthy.

People get caught up on the optics of "tax on deposits" and fear for their own savings.

I realize that the "optics" of the proposal was worse than the actual agreement but that's my point. In the shaky financial world we currently live in any thought of doing something like this, no matter how inconsequential the country may seem, could cause panic among the masses elsewhere.

It was a stupid move on Cyprus' part to even suggest such an action especially when that's their first reaction and not going after the REAL bond holders at all initially. Even if the bond holder's minuscule amount wouldn't have done anything to alleviate the problem (which it wouldn't have), it all comes down to perception.

It's almost like Cyprus is the "too SMALL to fail" banking system

[Wino]

UK Independence Party suggests Brits take their money from Spanish banks

Now, the UKip is not a huge party. They are decidedly the "anti-establishment" party; however, they had a good showing in a couple of elections and are apparently appealing to those who are distrusting the government. The leader of the UKip has suggested those with money in Spanish banks withdraw the funds now, to avoid a Cyprus-like haircut.

He cites the precedent of Cyprus stealing... I mean "taxing"... the deposits.

If this gains any traction at all, then Italy will probably be next.

The dominoes are leaning. Will they start to fall?

[silvor]

I thought this would be huge news.

No matter what, we still have checks and balances where the likelihood of this happening in the US is rare. I'm not saying it won't happen, just looking at the likelihood.

The markets should have tanked on the Cyprus news. Even if it was just the fact it was a reason to get out of the market and take profits.

Precious metals should have rallied on the news. That really suprised me.

not trying to get nothing, just wondering why there was no mention of it here and other mainstream avenues, maybe i am trying to get people to yank it out

[thekid]

However, the main problem is that it was to tax amounts less than the amount that was to be protected by the FDIC equivalent body in Cyprus. The proposal has since been modified to tax only amounts above that limit of 100k Euros.:

Agreed and it is to note that initial ecb proposal called for a tax only on accounts avove 100k. It was the cypriot pm that insisted on everybody taking a hit (likely to scuttle the proposal in a play to try to protect larger deposits). They bluffed and ecb did not blink. Cyprus is now going back to original proposal and deal being worked out includes exclusion of accounts over 100k.

There really is nothing much to see here other that cypriot financial and political system being a gong show.

[thekid]

Depositors are creditors in a sense, but I think of the main problem with this sitution is that they're asking for this "tax" on deposits without having bondholders take a haircut first.

Keeping in mind this is a different country where the rules aren't exactly the same as in the U.S. and their outstanding bonds aren't anywhere near the capital the banks need anyway. However this still just looks bad all the way around for the banks which in turn could unnerve debt holders and depositors of other EU banks that may be on shaky ground. Cyprus is an ancillary country compared to the likes of Spain and Italy but, in such uncertain times, trust in the EU banking system doesn't need any more shake-ups like this.

Cyprus is partcular in that it's banks have issued little or no bonds. The shere volume of foreign deposits made debt financings in captal markets unnecessary (the banks were already completely outsized to the rest of the cypriot economy with foreign deposits alone). Depositors, especially large accounts, are essentially the banks bondholders. Nobody would be troubled if bondholders in an insolvent business took a writeoff.

The big mistake here, and the public perception nightmare, came from cypriot insistance (contrary to ecb demands) that all accounts take a hit, thereby renegging on protecting inured accounts. They did this to either try to prevent a run by foreign holders or because they are corrupted by these foreign holders or both.

Look at "Plan B" that they are reaching agreement on with ecb now (very similar to ecb initial proposals). Accounts under 100k (and therefore most ordinary cypriot savings) are protected, banks are restructured isolating equityholders and large deposits (above insured amounts -ie. bondholder-like investors in a seperate entity with the bad debt so that those investors take a capital loss. Ecb loan comes in and allows cypriot government to honour deposit insurance up to 100k and prop up post restructuring failed banks.

Ths is only unerving on optics, not substance. Had they always maintained that the state would honour deposit insurance (as the ecb had wanted) none of this would have been particularly attention worthy.

People get caught up on the optics of "tax on deposits" and fear for their own savings. They should, if they invest in banks that become insolvent and if their state can't/won't honour deposit insurance. Can it happen elsewhere? Sure.. But keep in mind that cyprus' financial system was particularly risky (completely oversized for their economy and largely financed by offshore foreign holdings with which the banks speculated on greek bonds (increased positions during crisis for yield/thinking greek bank bondholders would not be required to take loss-which they were) and lost. For this to happen in bigger countries, you need (i) bank failures (can and does happen), (ii) state unwillingness/inability to bailout and/or honor deposit insurance -unlikely in big countries. Paradoxilly, a very good case could be made that by keeping short term rates below inflation (has same effect as a tax on savings -it causes deposits to lose purchasing power) Western governments have already/and are currently doing something similar. . Of course it's much less apparent as it eats away real and not nominal value and effects are much more diluted and spread out iver time, but the very notion of a state bailout / deposit insurance implies a transfer of wealth from the state to the creditors of the failed institution.

[humandraydel]

The "tax," which is not covered by FDIC insurance were it to happen in the US, is the problem. By hitting bank deposits - even officially suggesting this is possible - is a blow to all banking institutions associated with the Euro.

The problem is not scale, but precedent. The EU is a large economy, roughly the size of the US economy. Now, imagine you have $1M in the bank and live in Spain, Greece, Italy, Portugal, Ireland, or whoever is next on the "EU needs to bail them out" list. You see what is happening in Cyprus. Do you leave your money in the bank knowing that is is possible that $100K could be "taxed" out of existence overnight?

I agree, the precedent is the problem, it was a stupid decision, and it will undermine at least a little bit of the confidence in the banking system in Europe. However, the main problem is that it was to tax amounts less than the amount that was to be protected by the FDIC equivalent body in Cyprus. The proposal has since been modified to tax only amounts above that limit of 100k Euros.

As for having $1M in Spain, Italy - or even the US or Germany - I think that is completely irrelevant. In all countries having $1M in the bank is NOT risk-free because if the bank becomes insolvent, you could lose any amount above the (FDIC) guaranteed amount. In regards to Cyprus the option then becomes - potentially lose ALL money above the guaranteed amount or "tax" some of it in an attempt to regain solvency and not lose as much. Really, either way Cyprus and rich Russians are screwed.

I still maintain that this would not happen in the US because we control our own currency and therefore make our own decisions. And I think the fact that in 2008 the government backstopped money market funds even though they didn't have to is one example of that - they did it to restore confidence, otherwise there was likely going to be a run on MM funds. Yeah, I know print money results in inflation, but it's better than the alternatives.

Just a suggestion: How about we dispense with the name calling and just debate the facts, and our conclusions from the facts, or our opinions formed from viewing the facts? Or instead, I can start calling you an ostrich and say you're irrationally stubborn and have no ability to see the forest for the trees due to your myopia. Wow! There's a lot of pointless insults we can throw at each other, aren't there? I don't see how most of this paragraph contributes to the discussion of the topic at hand any more than your last sentence in the quote contributes, but I'm more than capable of hurling rebuttal ad hominem attacks in response to ad hominem attacks coming from others.

We will have to agree to disagree. I call posting 27 links to articles - some of questionable accuracy - along with a giant picture of EUROCANE CYPRUS fear mongering.

[kv968]

2. Didn't say depositors where equity holders. They are creditors. A deposit is not placing money in a vault or in trust (and even if it was, it would still be subject to custodian's credit risk), it's lending money to a bank so that a bank on-lends (subject to minimal capital requirements, recently increased under Basil III).

Of course bank runs are a real danger. That's why states insure capital up to an amount (cause, you know, banks can fail). Of course, your state insurance is only as good as your state.

Btw, Iceland did something very similar in 2008 by refusing to cover for foreign (uninsured) depositors when it's banks were about to fail.

When you deposit money in a bank you take bank credit risk on uninsured amounts and state credit risk on insured amounts. Unfortunately for cypriot depositors, their banks are insolvent and their government tried to reneg on deposit insurance in an attempt to soften the blow to larger depositors (mostly russians with offshore accounts). A deal with the ecb will most likely protect accounts under 100k and only have uninsured accountsbtake a loss, as should be.

Depositors are creditors in a sense, but I think of the main problem with this sitution is that they're asking for this "tax" on deposits without having bondholders take a haircut first.

Keeping in mind this is a different country where the rules aren't exactly the same as in the U.S. and their outstanding bonds aren't anywhere near the capital the banks need anyway. However this still just looks bad all the way around for the banks which in turn could unnerve debt holders and depositors of other EU banks that may be on shaky ground. Cyprus is an ancillary country compared to the likes of Spain and Italy but, in such uncertain times, trust in the EU banking system doesn't need any more shake-ups like this.

[thekid]

These are not losses. The EU imposed a TAX. That's NOT covered by FDIC.

Secondly, to state that bank depositors are investors making loans is ludicrous. You are not buying stock in the bank for income, you are "depositing" the money so it will be safe. Your statement also ignores fractional reserve banking entirely. Banks do not loan out depositors' money. They use that money as a reserve in case of a need for liquid cash.

The fractional reserve banking policy is the reason why a run on banks is still to be feared today. Essentially, the bank does not have enough money to pay back depositors, as that money is invested elsewhere.

1. It's structured as a tax so that the state can raise the capital it needs to secure the loan to prevent the banks from collapsing. Without the tax, the banks would simply collapse as the state does not have the funds to prop up the banks and a bank collapse would very much trigger capital loses. This is an attempt to restructure the banks to avoid a total collapse (and further loss of capital to lenders). Call it a tax or a writeoff for lenders in context of an insolvency restructuring, same thing.

2. Didn't say depositors where equity holders. They are creditors. A deposit is not placing money in a vault or in trust (and even if it was, it would still be subject to custodian's credit risk), it's lending money to a bank so that a bank on-lends (subject to minimal capital requirements, recently increased under Basil III).

Of course bank runs are a real danger. That's why states insure capital up to an amount (cause, you know, banks can fail). Of course, your state insurance is only as good as your state.

Btw, Iceland did something very similar in 2008 by refusing to cover for foreign (uninsured) depositors when it's banks were about to fail.

When you deposit money in a bank you take bank credit risk on uninsured amounts and state credit risk on insured amounts. Unfortunately for cypriot depositors, their banks are insolvent and their government tried to reneg on deposit insurance in an attempt to soften the blow to larger depositors (mostly russians with offshore accounts). A deal with the ecb will most likely protect accounts under 100k and only have uninsured accountsbtake a loss, as should be.

[Wino]

Bank deposits carry bank credit risk for amounts above state deposit insurance (and state deposit insurance carry state credit risk).

These are not losses. The EU imposed a TAX. That's NOT covered by FDIC.

Secondly, to state that bank depositors are investors making loans is ludicrous. You are not buying stock in the bank for income, you are "depositing" the money so it will be safe. Your statement also ignores fractional reserve banking entirely. Banks do not loan out depositors' money. They use that money as a reserve in case of a need for liquid cash.

The fractional reserve banking policy is the reason why a run on banks is still to be feared today. Essentially, the bank does not have enough money to pay back depositors, as that money is invested elsewhere.

[thekid]

Bank deposits carry bank credit risk for amounts above state deposit insurance (and state deposit insurance carry state credit risk).

Cypriot banks are insolvent (they basically took russian mob money and bought greek bonds with it, on which they suffered unsustainable losses). Lenders to cypriot banks should lose capital. A lender of last resort (ecb) has accepted to make a loan, subject to existing creditors taking a writeoff on their debt. Perfectly normal and something you see everyday, if you replace the term "deposit" to "loan".

There really is nothing remarkable here, other than "optics". And even that would not have been a problem were it not for the cypriot government that refused initial ecb demand that only accounts above state insured 100k take a cut (cypriot pm insisted all accounts be hit so as to lower hit on bigger accounts held, by in large, by Russians). Cyprus is now returning to a higher shave for above 100k accounts while under 100k accounts remain fully protected and a deal will likely be reached around this parameter.

There is no reason whatsoever that lenders to a bank should not lose capital on uninsured amounts should the bank go under (and even on insured amounts should the state be insolvent).

There really is little interest to this story other than (i) cypriot government shamefully trying to protect russian money launderers (cyprus' oversized financial sector is largely based on this) and (ii) people all over the world not understanding the situation and freaking out.

[Wino]

To be clear, the consequences for Cyprus are VERY severe, but to insinuate that the same sort of catastrophe could happen in the U.S. is naive at best, and paranoid fear mongering at worst.

The "tax," which is not covered by FDIC insurance were it to happen in the US, is the problem. By hitting bank deposits - even officially suggesting this is possible - is a blow to all banking institutions associated with the Euro.

The problem is not scale, but precedent. The EU is a large economy, roughly the size of the US economy. Now, imagine you have $1M in the bank and live in Spain, Greece, Italy, Portugal, Ireland, or whoever is next on the "EU needs to bail them out" list. You see what is happening in Cyprus. Do you leave your money in the bank knowing that is is possible that $100K could be "taxed" out of existence overnight?

The officially-sanctioned raid on bank accounts was and is stupid. The last thing the world needs now is a major currency to force a loss of confidence in their banking system, yet this is exactly what they have done. Are you suggesting the Cyprus depositor tax has had no effect on the consumer confidence in the EU banking system in general? If people in Spain or Italy are now questioning keeping funds in the bank - not acting on the idea, but just questioning whether they should pull out the funds - then I can state categorically that confidence in the safety of the EU banks has been detrimentally affected.

Just a suggestion: How about we dispense with the name calling and just debate the facts, and our conclusions from the facts, or our opinions formed from viewing the facts? Or instead, I can start calling you an ostrich and say you're irrationally stubborn and have no ability to see the forest for the trees due to your myopia. Wow! There's a lot of pointless insults we can throw at each other, aren't there? I don't see how most of this paragraph contributes to the discussion of the topic at hand any more than your last sentence in the quote contributes, but I'm more than capable of hurling rebuttal ad hominem attacks in response to ad hominem attacks coming from others.

why isnt anyone talking about this?

Look in the news article forum below. I brought up this topic on March 18. I stopped talking about it when others started throwing ad hominem attacks that didn't contribute to the discussion, though it was a different poster who was rudely dismissing valid points in that thread.

[humandraydel]

you guys really need to open your eyes and see whats going on before its too late, for those that dont trust rogue journalism here is one straight from the front page of yahoo, right where you feel comfortable, enjoy.

http://finance.yahoo.com/blogs/daily...141227303.html

I've probably read more on this subject than you have, so I'm well aware of the situation. And we WERE faced with a somewhat similar situation in 2008. However, due to certain circumstances such as controlling our own currency (and therefore destiny), we get to make decisions for ourselves. As such, our government decided to backstop many of the large banks and even went further to support money market funds which are NOT FDIC protected. All of this was done to restore CONFIDENCE in the "system." By maintaining a level of confidence, the system was allowed to work through the issues with a lot of pain, but without total collapse.

Obviously Cyprus does not have the options we have and the primary concern is the destruction of the confidence which leads to further declines (runs on the banks, etc). To be clear, the consequences for Cyprus are VERY severe, but to insinuate that the same sort of catastrophe could happen in the U.S. is naive at best, and paranoid fear mongering at worst.