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 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……
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.