Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Independent Scotland Currency, Plan A, B, C or D - British or Scottish Pound? - 2nd Sep 14
Gold and Silver Price A Critical Juncture - 2nd Sep 14
Gold and Silver Precious Metals Complex Contradiction and Potential - 2nd Sep 14
France And The Long-Gone Thatcher Moment - 2nd Sep 14
Stock Market Approaching An Important High? - 2nd Sep 14
Gold, Silver Price Summer Doldrums Coming to an End - 2nd Sep 14
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Cyprus Bank Run, Who's Next?

Stock-Markets / Credit Crisis 2013 Mar 16, 2013 - 11:48 AM GMT

By: Raul_I_Meijer

Stock-Markets

Overnight last night, the Eurogroup (Eurozone executive committee) negotiated a deal for a bailout of the banking system in Cyprus. As part of the deal, a one-time, one-off levy on depositors was agreed: deposits below €100,000 are subject to a 6.75% levy, while those over €100,000 are subject to a 9.99% "fine".

While none of the timing is surprising - late Friday, early Saturday is always the ideal time to push such measures down people's throats -, neither did it come as a surprise that a bank run ensued as soon as those few Cypriot banks that do business on Saturday mornings, opened their doors.


This had been foreseen, of course. And so capital controls had been set up beforehand. In this case, limited deposit withdrawals and a full suspension of internet banking. The justification for all this can be found in the large amounts of Russian - allegedly black market - deposits in Cyprus. But while that may be presented as justification, it's by no means not where the potential fall-out will halt.

After all, what's to say that what can be done to depositors in Cyprus' banks, cannot just as easily be repeated for Greek, Italian, Spanish ones? If the EU wasn't yet scared enough of Beppe Grillo and his still surging popularity, now would be a good time to start being afraid. While everyone's focus is on the Russian mob, nobody (just read the press reports today) talks about the law-abiding Cypriots who see their hard earned savings wealth forcibly taken from them. Nobody but the likes of Grillo, that is. Who said earlier this week that (northern) Europe would drop Italy like a stone once German, French and Dutch banks have shed their risky Italian assets.

Besides, if you think the Russian deposit holders are fatally wounded right now, think again. They've seen this coming for at least 6 months, they've had all the time they need to move assets around, and, if anything, will simply use this decision to launder a lot of capital, and happily pay a 10% fee for the honor.

Cyprus is small, and the hope is that hardly anyone will notice what happens there, or be interested. But throughout the Eurozone over the past five years, deposit guarantees have risen, in a so far pretty successful attempt to prevent bank runs. Overnight, that model has now been thrown out with the bathwater. And all of Europe should be wary of what happened. A precedent has been set, and what's good for the goose fits the gander.

Not that German, French, Dutch depositors will lose sleep right this moment, but then that's precisely the idea. The EU core nations have so far been able to convince their citizens that they are rich and their economies recovering, and everything's under control. Moreover, the story that Russian criminals get a 10% haircut goes down well among the respectable citizenry. What happens if and when Italy or Spain need a bailout like Cyprus is not even considered. But maybe that's not so smart.

The Cyprus bailout was ostensibly executed to "save the Eurozone”. And it was presented as a one-off. But so was Greece and its forced haircuts for investors. You can only have so many one-offs and remain credible. European economies are all still deteriorating, though admittedly there are a few choice German numbers that are not all bad. But there can be no doubt that pressure on the EU/Eurogroup to step in again in some country will arise some time soon. Will that country's depositors leave their money in the bank when that threat becomes real, or will they take it out? What would you do now the Cyprus example is in place?

It's true that Cyprus banks are bloated with assets at 800% of GDP. That's about the same as Ireland, and everyone agrees that "something must be done". Iceland once stood at 1000%, but it's an order of magnitude smaller even than Cyprus, and not a Eurozone member, just like Malta, which presently stands at 1000%.

The picture may change for other Europeans, however, when they realize that overall EU bank assets in 2012 were 366% of GDP, at €47.3 trillion ($61.5 trillion). And if those numbers look too abstract, here's a comparison: in 2011, US bank assets were at 74% of GDP (€8.6 trillion), and Japan's 178% (€7.1 trillion). How about that for perspective?

Among individual member nations, bank assets vs GDP differ. France and The Netherlands clock well over 400%, Germany, Spain and Portugal over 300%, while Italy is well below 300%. That almost makes the latter look like a cautious nation, until you look at issues like government debt.

Overall, these numbers draw an excellent picture of why it's so hard to agree on a banking union. Actually, it's merely a part of the picture, but it still speaks loud enough. That banking union will, guaranteed, even if it is at some point established, never include the UK. There, bank assets are quite a stretch over 500% of GDP, and there are estimates that put that number much higher still. There is no doubt that Britain has a hugely bloated financial sector, i.e. The City, and it has no other policies in place than to protect it, let it grow even further and increase its economic dependency on the financial sector.

With total EU bank assets at €47.3 trillion, private sector deposits at €10.2 trillion (equal to total UK bank assets) and total deposits at €17 trillion, there's a substantial gap (or several), comprised to a considerable extent of risk-carrying assets. This risk, when combined with overall plunging economic prospects, leaves Europe with a poisonous financial mix. And as much as those involved can try to smooth-talk it all over, you can bet your donkey that for the law-abiding hard working citizens of the next rescue case, the world will be cast in the gloomy light of what happened to Cyprus on Saturday, March 16 2013.

And they don't even yet have to know that Europe's shadow banking system adds another €17 trillion to the risk picture. They have been sufficiently warned: Brussels has laid out its true intentions on the table. Like a big red flag. In Europe, the much touted government deposit insurance itself has now become a risky asset.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2013 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Raul Ilargi Meijer Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014