Cyprus steals 10% of all depositors money, trigger bank runs.

[sc281]

"Bailout tax" Good times...

http://www.theage.com.au/world/atms-drained-as-bailout-tax-triggers-run-on-bank-deposits-20130317-2g8rx.html

[Forever_frost]

In a move that could set off new fears of contagion across the eurozone, anxious depositors drained cash from ATMs in Cyprus on Saturday, hours after European officials in Brussels required that part of a new €10 billion ($12.6 billion) bailout must be paid for directly from the bank accounts of savers.

The move - a first in the three-year-old European financial crisis - raised questions over whether bank runs could be set off elsewhere.
People gather at an ATM in Cyprus

Panic: people queued to withdraw money after it was determined that part of the Greek bailout would come from the bank accounts of savers. Photo: Reuters

Jeroen Dijsselbloem, president of the group of euro-area ministers, on Saturday declined to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered. Although banks placed withdrawal limits of €400 on ATMs, most of them had run out of cash by early evening. People around the country reacted with disbelief and anger.
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''This is a clear-cut robbery,'' said Andreas Moyseos, a former electrician who is a pensioner in Nicosia, the capital. Iliana Andreadakis, a book critic, added: ''This issue doesn't only affect the people's deposits, but also the prospect of the Cyprus economy. The EU has diminished its credibility.''

In Nicosia, about 150 demonstrators massed in front of the presidential palace late in the afternoon after calls went out on social media to protest the decision, which came with almost no warning at the beginning of a three-day religious holiday.
People withdraw money from a cash-point machine in the Cypriot capital Nicosia.

Lining up: People withdraw money from a cash-point machine in the Cypriot capital Nicosia. Photo: AFP

Under an emergency deal reached early on Saturday in Brussels, a one-time tax of 9.9 per cent is to be levied on Cypriot bank deposits of more than €100,000 effective on Tuesday, hitting wealthy depositors - mostly Russians who have put vast sums into Cyprus's banks in recent years. But even deposits under that amount would be taxed at 6.75 per cent, meaning that Cyprus's creditors will be confiscating money directly from pensioners, workers and regular depositors to pay off the bailout tab.

Cyprus's newly elected President Nicos Anastasiades said taxing depositors would allow Cyprus to avoid implementing harsher austerity measures, including pension cuts and tax increases, of the type that has wreaked havoc in neighbouring Greece. That thinking appealed to some Cypriots, including Stala Georgoudi, 56. ''A one-time thing would be better than worse measures,'' she said.

But Sharon Bowles, a British member of the European parliament who is the head of the body's economic and monetary affairs committee, said the accord amounted to a ''grabbing of ordinary depositors' money'' billed as a tax.

The surprise policy by the International Monetary Fund, the European Central Bank and the European Commission is the first to take money from ordinary savers.

[Sgt Beavis]

http://www.reuters.com/article/2013/03/17/us-cyprus-parliament-idUSBRE92G03I20130317

Cyprus's Communist party AKEL, accused of stalling on a bailout during its tenure in power until the end of February, would vote against the measure. The socialist Edek party called EU demands "absurd".

You know that you have screwed up when even the Communists are against taxing.

[sc281]

Now they are postponing the vote for one day. I wonder if the damage is already done. Who would trust their money in a euro bank when they are trying this stuff?

http://www.theblaze.com/stories/2013/03/17/eurozone-country-pushes-back-vote-on-shock-bank-deposit-tax-for-1-day/

[Forever_frost]

Sell off governmental assets or bank assets. You can't take that money from the people who had no say in it

[Sgt Beavis]

This is one of the reasons you need to segregate commercial and investment banking. Allowing the two to co-exist within the same entity is a recipe for disaster. Our country needs to learn that lesson (again) soon or we'll have a repeat of the Great Depression. Britain has already seen the folly in this and is forcing segregation. We need a return to Glass Stegal before it is too late.

[YALE]

http://www.reuters.com/article/2013/...92G03I20130317



You know that you have screwed up when even the Communists are against taxing.

The socialists were the ones calling it absurd. Oddly enough, those are two separate parties.

[slow99]

Here:

What happened to Cyprus on Friday evening was one of the most significant developments in the Eurozone since the Greek election last summer. To tax the bank deposits of savers sends an ominous message to the entire global investment community. All of us should really take a moment to consider what the governments of Europe have done. To be clear, they initiated a surprise assault on the precautionary savings of their own people. Such a move should send shock waves across the entire population of the developed world. This was not a Bernanke style slow moving financial repression against risk free savings that is meant to stir up animal spirits and force risk taking. This is a nuclear war on savings and wealth - something that will likely crush animal spirits. This is a policy move you expect from a dictatorial regime in sub-Saharan Africa, not in an EMU member state. If the European governments can clandestinely expropriate 7 to 10 percent of their hard working citizen's precautionary savings after the close of business on a Friday night, what else are they capable of doing? Why even hold money in a bank account? Are they trying to start a bank run?

Sadly, the politicians that are responsible for this travesty likely don't even understand the unintended consequences of their actions. Instead, they just have a simple myopic goal - to get reelected. And because the SPD has consistently attacked Merkel over bailout payments from German taxpayers to Russian oligarchs, action had to be taken. The German elections are coming up quickly, and Merkel needed to quiet the opposition. She needed to appear tough - not like a leader who would just throw away hard working German taxpayer euros to a bunch of Russian tax dodgers. The plan was simple - haircuts on deposits. The German electorate would applaud her bold actions. She would be teaching the bad guys a lesson. And what could go wrong? Its only little old Cyprus - its too small to matter.

But how would she get the peripheral FinMins to agree? The southern contingent would block the move for sure - unless of course they were bought off. Its was a masterful plan - give the already beaten down peripherals better bailout terms in exchange for a transparent domestic political win on the Cyprus issue. The German electorate will think the weaker bailout terms for Ireland and Portugal are just a reward for following the mindless austerity measures. And in turn, the bulk of the attention will focus on the fact that German tax dollars were kept away from Greeks and Russians.

Maybe I'm wrong. Maybe it didn't really go down like that. But as I see it, there really is no other explanation for taking such extraordinary risks with bank stability. And what are those risks? Well the tax is still not a done deal in Cyprus. The parliament could reject it. We will find out Monday evening (maybe) - and if it is rejected, then Merkel's game of chicken for political gain will backfire. She will lose the bet that Cyprus is not big enough to be systemic. If the Cypriots just stand up and say - "ok kick us out and we'll keep the 10 yards of Target 2 balances and leave" - she will be up against a very painful wall. It will actually be up to the ECB to either cut off the ELA and force a Euro exit for Cyprus, or allow the ELA to pay off ALL depositors during the ensuing bank run. Importantly, the central bank governors are not the same as the FinMins. And it is NOT likely they would all agree to cut the ELA. And, if the Cypriots exit, it would likely cost the member countries even more than the bailout (as the Target2 money would stay in Cyprus). Although the Cypriots may not recognize it, they actually have a very strong bargaining position for a much better deal.

Now while the possible exit trade sounds entertaining and exciting, it is not the likely scenario. In the end the Cypriot parliament most likely bows to the Germans and passes the tax legislation. Then, peripherals widen across the board and the Euro weakens. The question of course is how much. A good guess at the initial reaction on Monday is -1.5/2 percent in EURUSD and +25 to +50 bps in peripheral 10yr spreads. Importantly, there could be a lot of uncertainty Monday if the Cypriot parliament is still in debate as the markets open. Of course risk assets globally will surely be soft.

And if the Cypriot parliament agrees to the tax, we should also see some serious instability develop at peripheral banks. Why keep your money at a Spanish or Italian bank when you can jump to Germany or France. And why even keep money in the Euroarea banking system at all. We should see huge outflows. Maybe I'm wrong and deposits stay sticky, but the risks here are HUGE and SCARY.

Right now, I would argue that the risk of an EMU exit by Cyprus is real. And this is much more of a clear and present danger than anything happening in Italy or Spain. And even without passage of the tax, the potential for a bank run is very real. As a consequence, these events are MUCH MORE important than the Italian election results, or frankly any other issue in Europe.

So how do we play this? As most readers know, my long term baseline for EMU has always been that we would see the Germans eventually crushed on their policies of bail-ins and austerity. This is a clear short term loss for this view that we are headed towards a long term "Lirafication" of EMU. I did NOT expect the Germans to get a PSI on Cypriot bank deposits. For me, it is a shocking outcome!!

That said, I still fully expect that Mario will forcibly stop contagion with the most powerful financial instrument in Europe - the ECB balance sheet. But Mario might hang back a bit if things get messy. He admonished Schauble back in January not to go down the bank deposit haircut path in Cyprus. He warned that Cyprus is systemic. The Germans are taking a serious risk with financial stability for pure political gains. Its a nasty game and Mario will NOT be pleased. He may in turn want to teach the Germans a lesson and let them squirm a while before he brings out the bazooka.

So while we are still on the long-term path to "Lirafication" of the Eurozone, this event strikes me as having great potential to create short term instability no matter what the Cypriot parliament decides. And taxing deposits in a "developed" country is uncharted waters - the reaction by ALL global investors could be very dramatic. For those in the long risk trade, who have enjoyed double digit YTD returns (ie spoo/nky plus blues etc etc), hitting a few bids on the sunday night open seems a very sensible strategy.

I hope I am wrong about the severity of this action. But the prudent thing to do is lighten up/hedge. Then you can watch from the sidelines and buy the dip (which could be pretty large) as it becomes clear that the German attack on reflation eventually falters. To put this policy action in the context of my commentary last Friday morning, what the Eurozone FinMins agreed to Friday evening was a bit of trepanning. My head is already starting to hurt!!

So get a good nights sleep. It will be all eyes on the Cypriot parliament for the next couple days. And my best guess is that things get quite messy this week.

[slow99]

This is one of the reasons you need to segregate commercial and investment banking.

What does this have to do with that?

[Sgt Beavis]

What does this have to do with that?

It is the investment side that lost all the money. Consumers are shielded if investment banking was separated from commercial ones.

We used to have this in our country under the Glass Stegal act. One of the reason our economy went to shit in 2008 is because that act was repealed in 1998 under Clinton (and a Republican Senate). Since then, many commercial banks were merged with investment banks on Wall Street. That is of the reasons we had so many problems in 2008 when the investment side went straight to hell. All the commercial money dried up and no one wanted to lend anything.

It's actually more complex than that but segregating commercial and investment banks, after the Great Depression, is generally a good thing.

[Forever_frost]

I didn't know this. Thanks for the education

[jayjohnson600]

The overnight-cash grab is just too crude to be used here in the US. Here they just inflate away over time,
some of the paper makes its way to sovreigns.
Then let the sheeple sort it out for themselves. This lends a measure of free market capitolism to the Fed's theft.

For the Eurozone, lopping off a Cyprus zero is actually geting off lightly. When the overnight-cash grabs occur,
it's usually much more severe.
... and all hail the return of the bank holiday.

Overnight gold/silver isn't heating up. Maybe lumpy mattresses coming in the short term.
If the targeted account's remaing funds flow into stocks this week, bet dollars to doughnuts there will be a strong
equities pullback to sop up a fresh batch of dumb money. It's due anyway.
Then, the Cypriot fleecing will be complete, and move on to the next flim-flam.

[jw33]

[91cavgt]

It was just announced that the banks will now be closed till Thursday.

[racrguy]

I'd try to burn down so many buildings....