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Cyprus Banks embark on a new model for Bank Risk and Bailouts

beebee
edited March 2013 in Off-Topic
The risky business of banking...

From Article:
"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders," he said.

New Model for Bank Bailouts

Comments

  • clacy
    This is a horrible precedent, IMO.

    I don't understand why the EU would take this stance, unless things there are spiraling out of control from either a monetary standpoint, or politically.

    Confidence in your banking system is paramount to a stable economic and political climate.

    It seems as though they are ok with confidence in their banking system declining.
  • Old_JoeOld_Joe
    edited March 2013
    Reply to @clacy: How much confidence do you have that if you have a large deposit (well above the FDIC limit) in a US bank that you will be made whole if the bank does silly things and goes belly up? Not sure about you, but I don't have much confidence at all on that. The rules are quite plain... the limit is the limit.

    That's exactly what finally happened in Cyprus. Where the games were first tried was the proposal to nick ALL depositors for some percentage of the loss, without regard to the deposit insurance. This was done in a cynical effort to protect the really big Russian deposits which are not only well over the insurance limit (€100,000/$130,000), but which are also widely believed to be of dubious legitimacy with respect to the acquisition of those large amounts of cash. This might have been done for political reasons vis-a-vis relations between the EU and the Russian government.

    That's why an effort was made to get the Russian government involved- and you might have noticed that the Russians chose to stay well away from the entire fiasco, as they also have a pretty good idea regarding the source of those funds and their owners.

    There was such a protest from the smaller depositors that the EU backed off, and those large deposits are pretty much toast. How sad. If I were a real cynic I might suspect that the whole thing was a kabuki play to quiet down Mr. Putin. Scott has taken over as the MFO cynic-in chief, though... his perspective might be interesting too.
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