Who Are They Kidding? The Bank Run That Wasn’t?

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I don’t know if they’re trying to convince themselves or trying to ease concerns or what.  Sure, we don’t want to see a bank run become toxic and infect neighboring countries, but, I have always been of the belief that it’s best to address reality, even if the news could cause unrest and actions we don’t want to see. 

So, I’m reading stories about the Cyprus banks proclaiming there wasn’t a run on the banks…..

In Cyprus, the bank run that wasn’t

In the end it was hardly even a stroll, let alone the widely predicted run on the banks of Cyprus.

Well, that’s true.  But, why wasn’t there a run when the banks opened?  Even the article which can explain it has this laughable tidbit……

Bank of Cyprus big savers to lose up to 60 percent

The rush didn’t materialize as Cypriots appeared to take the measures in stride, lining up patiently to do their business and defying dire predictions of scenes of pandemonium.

Okay, the rush didn’t materialize, sort of……  But, here’s why.

Cyprus agreed on Monday to make bank depositors with accounts over 100,000 euros contribute to the financial rescue in order to secure 10 billion euros ($12.9 billion) in loans from the eurozone and the International Monetary Fund. Cyprus needed to scrounge up 5.8 billion euros ($7.4 billion) on its own in order to clinch the larger package, and banks had remained shut for nearly two weeks until politicians hammered out a deal, opening again on Thursday.

Originally, it was 10% of the savers to raise the 5.8 billion euros.  I love this part…..

Cypriot officials had previously said that large savers at Laiki — which will be absorbed in to the Bank of Cyprus — could lose as much as 80 percent. But they had said large accounts at the Bank of Cyprus would lose only 30 to 40 percent.

See?  That’s not so bad!  It was 10%, but then maybe 80%, but now probably on 30-40%.  But, wait!!!  There’s more!!!

Deposits of more than 100,000 euros ($128,000) at the Bank of Cyprus will lose 37.5 percent in money that will be converted into bank shares, according to a central bank statement. In a second raid on these accounts, depositors also could lose up to 22.5 percent more, depending on what experts determine is needed to prop up the bank’s reserves. The experts will have 90 days to figure that out.

The experts.  I like that.  Those are probably the same experts who are still trying to figure out what happened. 

The run already happened!!

Because getting exact figures from Cyprus or the EU is next to impossible, we’re left with approximations.  But, in the days of dithering by the Cypriot politicians about 30 to 40 billion euros was taken from the banks and moved out of country.  

This leaves us with some extraordinary math!  What did Cyprus give up to get that precious 10 billion euros? 

The remaining 40 percent of big deposits at the Bank of Cyprus will be “temporarily frozen for liquidity reasons,” but continue to accrue existing levels of interest plus another 10 percent, the central bank said.

Analysts said Saturday that imposing bigger losses on Bank of Cyprus customers could further squeeze already crippled businesses as Cyprus tries to rebuild its banking sector in exchange for the international rescue package.

Sofronis Clerides, an economics professor at the University of Cyprus, said: “Most of the damage will be done to businesses which had their money in the bank” to pay suppliers and employees. “There’s quite a difference between a 30 percent loss and a 60 percent loss.” With businesses shrinking, Cyprus could be dragged down into an even deeper recession, he said.

Fascinating.  They had to kill their economy in order to save it. 

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31 Responses to Who Are They Kidding? The Bank Run That Wasn’t?

  1. cdquarles says:

    Yep, the run has already happened. Who in their right mind would keep any money, above a month or two’s emergency in a Cyprus Bank? Hmm are there any US banking holding companies with branches in Cyprus?

  2. cdquarles says:

    Oh wait. Do they have direct deposit requirements for government payments, like they do here?

    • DirkH says:

      Don’t know, but not a problem, as the Troika allows to withdraw 300 EUR a day (500 for foreigners). So the people on welfare should be able to get their monthly payment out within 2 or 3 days every month. And as the confiscation already happened, it will take some time for the next collapse, and the next one will happen differently.

      • cdquarles says:

        Yep, like FDR’s gold confiscation and Glass-Steagall regulations collapsed the Savings and Loan industry in the US some 50 years later.

  3. DirkH says:

    It’s a 100% loss as the remaining money is frozen. Frozen means you don’t get it. Therefore 100%.
    As for a revocation of the capital controls in a month, well, don’t hold your breath.
    Looks like the core of the empire is safe for now.

    • suyts says:

      LOL, yeh, those controls will remain until they’ve raided all they can.

      • DirkH says:

        No, the raiding has already happened. It is now only the question of how to keep the banks capitalized for as long as possible. A revocation of the capital controls will lead to rapid capital outflow and another collapse.

        The Cypriot banks were mostly capitalized by deposits. to 85% or so. German and French banks only to 63%. The remaining capital comes from their stockholders and bondholders.

        So for the Cypriot banks deposit outflow is much more critical than to German and French. Well, they are living dead now I think as most of the deposits have already escaped during the last week via the open offices in London, Athens and Moscow. They will open again after Eastern BTW. Which will not be reported.

        Our idiot media still think we believe them a word. The amazing power of stupidity.

        • cdquarles says:

          The thing is, Dirk, that deposits, particularly demand deposits, should never have been considered capital. Demand deposits should be considered liabilities. Assets and capital should be the buildings, equipment, stocks, bonds, and trading profits.

        • DirkH says:

          Arguable. What was definitely not exactly trust building was the initial demand by the Troika to take 6.5 % from insured depositors while protecting bondholders. This was demanded because the ECB is the bondholder with 11 bn USD.
          They later changed it ham-handedly until they found a solution that at least respects the seniority principle but did so in a completely arbitrary manner. So while they now do not seem to break laws it is still outrageous.

  4. grumpydenier says:

    With hints of ‘insider trading’, for want of better terminology, I’d love to know who, when and how much was eased out by those that got the nod early in the ‘discussions’. No doubt it will all come out one day; too late to help the SMEs in Cyprus.

    • cdquarles says:

      No need for that kind of speculation. Anyone who possesses a brain and money would have started getting their money out as soon as any kind of ‘bank levy’ discussion got started. (Yeah, I suspect the Russians realized this very early and responded more or less the way they did because of this and other factors).

      • DirkH says:

        They did not have to. During the entire last week international subsidiaries of Laiki Bank of which there are many stayed open according to zerohedge.
        https://en.wikipedia.org/wiki/Laiki_Bank

        Please don’t expect anything less than a totally bungled execution from Eurozone operations.

      • grumpydenier says:

        I know, I was being a touch circumspect (you never know who is watching lol).

        I doubt I’ll be around when someone manages to apply a FOI lever to this lot; so if you are still alive at that point, think of me and raise a glass in my memory.

  5. kelly liddle says:

    “Deposits of more than 100,000 euros ($128,000) at the Bank of Cyprus will lose 37.5 percent in money that will be converted into bank shares”

    This is good and a start at removing the mess (although would be better if every depositor had to lose some money). Depositors should lose some money the fact is the only way they could get all their money is if someone else gave it to them. This is not a comment about how the mess got started.

    • DirkH says:

      Hope it comes to Australia.

      • kelly liddle says:

        Dirk
        Could you explain more what you mean.

        • DirkH says:

          As you enjoy the Cypriot solution, I would wish it onto you. I don’t know how overextended the banks in Australia are; but why not let uninsured depositors take some risk in Australia as well.

        • DirkH says:

          And mess around with the seniority principle and the rule of law in a ham-fisted way in Australia as well. It’s jolly good fun here in the Eurozone.

        • kelly liddle says:

          Dirk
          I would not wish what is happening in Europe or US on my worst enemies. I don’t think that the recapitalisation of the Cyprus bank has been carried out well either. My only comment was that the bank is broke the only way to save something is for depositors to become owners. I am assuming any shareholders have lost the lot and any bond holders. Germany has put money towards Cyprus and if you wanted to give more then I suppose you can hold that oppinion and make sure that every Cyprus bank depositor got all their money.

          I also hope that nobody will ever consider bailing out Australia that is one of the reasons we do not have problems I believe. If we know nobody will take care of us then we are much more likely to take care of ourselves.

        • DirkH says:

          “My only comment was that the bank is broke the only way to save something is for depositors to become owners. ”

          Are you dense? These shares are worthless. It’s a nicer way of saying “Zilch”.
          How much would you be willing to pay me for some worthless shares in a bankrupt German PV maker?

        • kelly liddle says:

          Dirk
          So who do you suggest should bail out the depositors? I don’t know if these new shares will be worthless but if they are that suggests that the bank has no assets at all only bad loans. In Australia at least there appears to be a pattern and that is that banks that have done poorly smarten up their act and visa versa.

        • DirkH says:

          kelly liddle says:
          April 1, 2013 at 12:36 pm
          “So who do you suggest should bail out the depositors? I don’t know if these new shares will be worthless but if they are that suggests that the bank has no assets at all only bad loans.”

          For a bank with a leverage of 25 (as is the average in the Eurozone) it suffices that their assets drop by 4% and their entire capital base is wiped out.

          Who should bail out the depositors? Well the insured depositors by the state of Cyprus. The uninsured probably by nobody. What my problem is is the arbitraryness of the European decision making. Why is one bank left intact and the other wiped out completely? Makes no sense (well behind the scenes it does – this way the losses of the ECB as major bondholder are reduced.)

          The take home message is, do not trust a word the EU, the ECB or the Germans say.

    • suyts says:

      Kelly, I’m not sure “should” is a good word to use there. Personally, I think the people responsible for the mess should be a bit more accountable than simply raiding the savings accounts of businesses and people. And, as the post alluded to, this doesn’t really remove any messes. It just creates more.

      While it is true that the depositors were probably going to take a bath on this one way or the other, I think I would have exhausted other avenues first.

      • kelly liddle says:

        Suyts
        It isn’t a matter of raiding the savings the money is gone. The US has not exhausted other avenues yet they are still printing Cyprus couldn’t do this. Other Euro nations despite asking the depositors to take some losses are still handing out the money. The accountable bit should be held accountable not be more accountable that is too late now. Government oversight of the banks was lacking and the government itself must be lacking otherwise they would not have to go cup in hand the only way to change this is to vote them out. Did bankers commit criminal acts?, I am guessing they did and should be held ACCOUNTABLE but this has not even happened in the US where I am convinced fraud happened.

      • suyts says:

        Kelly, they still had other avenues to pursue prior to the raiding of the accounts. The could have sold state owned property. The could have withdrawn from the Euro and created their own currency, which would have allowed them to print. They could have done many things. Punishing people for saving their money is a horrid, horrid thought with ramifications we’ll see in the future, and not just in Cyprus, as we’ve already seen.

        In the long term, this has set the precedent for individual maximum wealth accumulation.

        • kelly liddle says:

          Depositing money in an institution is investing. Making bad investments should have consequences. This does not mean I do not feel sorry for those involved but other solutions would be less direct and effect others who don’t deserve it either. Changing currency for example would affect everybody that has a loan.

        • DirkH says:

          kelly liddle says:
          April 1, 2013 at 11:14 am
          “Depositing money in an institution is investing. Making bad investments should have consequences.”

          Yes, and the seniority principle mandates that stockholders should be the first to wiped out, follwed by junior bondholders, followed by senior bondholders, followed by uninsured depositors.

          Which is something entirely different from what the Troika initially demanded; and THAT allows us the conclusion that Germany and the Troika will run roughshot over the rule of law as they see fit.

          I say this as a German: this was the usual totally bungled and hamhanded approach I expect from our politicians. Not that the socialist are one ounce better, the only difference between them and Merkel is that the Socialists do not have ANY knowledge about how an economy works. But they share this passive-agressive approach of wanting to destroy any nation that dares to have lower tax rates than Germany.

        • kelly liddle says:

          Dirk
          Have all the bondholders and shareholders been wiped out? If they haven’t been this is terrible they are the ones that have no excuse whatsoever.

          “But they share this passive-agressive approach of wanting to destroy any nation that dares to have lower tax rates than Germany.”

          I have no idea about this but if it is true then it is not good and will do much more harm later on including to Germany. You should be best mates with France now.

        • suyts says:

          “Yes, and the seniority principle mandates that stockholders should be the first to wiped out, follwed by junior bondholders, followed by senior bondholders, followed by uninsured depositors.”

          Exactly true.

        • DirkH says:

          Kelly, see my reply here:
          https://suyts.wordpress.com/2013/04/01/when-you-dont-suck-as-bad-as-your-peers-the-danger-of-relative-comparisons/#comment-59311

          It explains our approach to taxation. German pioliticians of nearly all parties constantly rail against what they call “tax havens”; the very idea of tax competition drives them nuts. They have made verbal attacks against Ireland, Switzerland, Cyprus, you name it.

          “Dirk
          Have all the bondholders and shareholders been wiped out? If they haven’t been this is terrible they are the ones that have no excuse whatsoever.”

          Initially the Troika demanded to let bondholders intact! And siphon off money from all accounts including the sub 100K. This is the scandal. The reason was that the ECB is the major bondholder with 11 bn EUR!

          They later after much chagrin decided to let one bank survive and raid the other completely, but save the 10k EUR on a bank account and warn all my friends about it. I’m in the core but you never know – e ven Germany has 85% public debt…

        • DirkH says:

          Sorry, slightly bungled text due to my use of a few characters wordpress misinterpreted.
          a repeat:
          First solution of the Troika was violating the seniority principle, later after much chagrin they decided to let one bank intact and not do anything with it and wipe out Laiki bank as much as they could.

          Which is pro forma legal; BUT arbitrary.

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