Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Netflix - FAANG a Buy, Sell or Hold?, CME Black Swans Chasing Value in Biotech Stocks - 5th Aug 21
We Will See SPX 4600 In 2021 - 5th Aug 21
Revisiting The Excess Phase Stock Market Peak Pattern - 5th Aug 21
Dramatic Divergence between US and European Stock Markets - 5th Aug 21
Budgie Clipped Wings, How Long Before Flight Feathers Grow Back After Clipping, 4 Week Update - 5th Aug 21
Lisa Su's AMD Stock Price Rockets to the Moon! $200 Target, How to Buy for Under $78 - 4th Aug 21
Gold Jumps for Joy Only to Hit the Ceiling… Hard - 4th Aug 21
Is Wise Really The King of Online Money Transfer Services? - 4th Aug 21
Tips for Investing Your Money in Stocks - The Ultimate Guide - 4th Aug 21
Gold is the Key to Financial Wisdom - 4th Aug 21
How to Trade Binance Vanilla Options for the First Time on Bitcoin Crypto's - 2nd Aug 21
From vaccine inequality to economic apartheid - 2nd Aug 21
Stock Market Intermediate Top Reached - 2nd Aug 21
Gold at a Crossroads of Hawkish Fed and High Inflation - 2nd Aug 21
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2019 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