"Money in the Bank"..dangerous?

[Nagel]

I don't see how the Cyprus bank deposit grab can be allowed to go through, and it hasn't yet. I'm sure it will be rejected as it goes against the whole principle of protecting savers money by taking the money owed from bond holders instead.

 

If it goes through there will be bank runs in any country with a hint of financial instability, which is all the southern EU countries.

[ANGELFIRE1]

The euro is dead, thank God.

 

Angel.

[SpikeMac]

The euro is dead, thank God.

 

Angel.

 

Not dead.

 

It will be different though.

[AngryDog]

Cant take what I dont have

[I1L2T3]

But in the context of LeMaquis' point, don't forget that Cypriot banks have been offerring stonking 7+% rates to savers for a good while now: that's to be contrasted with what rates are available in the UK and most of (essentially northern-) Europe, much heavier taxed as well relative to Cyprus.

 

High return = high risk, the Cyprus haircut basically sets their (local, Russian, Brit, etc.) savers back to the UK (and other heavier-taxed) savers' situation.

 

I'd call it poetic justice, if it wasn't for the growing risk of (indeed) the local bank run going wider within the €zone (in Italy & Spain).

 

It'll be interesting to see what happens when Cypriot banks finally re-open after their 'extended' bank holiday

 

Indeed. Just watching Louise Cooper on Tv and she made a very convincing argument for the following, if they really have to tax savings :

 

1. Anything covered by the deposit guarantee scheme (is it 100,000 EURO and below) leave it alone.

 

2. Anything above, apply the levy.

 

Part of the argument for 2. is the perception that much of the money deposited offshore in Cyprus (e.g. by non-Cypriots) is percieved as ill-gotten in some way, or there to avoid/evade tax in other countries.

 

It seems something of a halfway house solution but it got me thinking if some deposits could be proven to be ill-gotten then just seize them anyway. Ill-gotten gains are ill-gotten gains so why take a bit when they could have the lot?

[L00b]

Problem is, that (1)/(2) approach does not yield enough for the Cypriot gvt to meet its obligation to the EU/ECB to get the bailout €s.

 

They're probably going to set a threshold, but lower than €100k. There's talk of €20k, but it's early days anyway: the bank holiday has been extended to Thursday (there's a surprise: they need to pitch & fine-tune fast, if they are to avoid a bank run as soon as banks re-open...might well be too late anyway, pandora's box has been well & truly opened now).

 

Call me thick ,but I just don't understand the talks about the deposit guarantee: these measures have always been pitched & set against the deposits being wiped by a bank default/bust, NOT in respect of gvt taxes...so why do peeps & journalists keep bringing them up? Which deposit gvt guarantee says the gvt will never tax the principal as well as the interest (here or in Europe)?

[Anna B]

Interest is income gained by savers. It's money you get for doing nothing other than leave savings in an account. So it's right to tax it.

 

Sometimes you're as inaccurate as MrSmith.

 

First of all the money is taxed when it is earned.

Secondly any interest it makes is already taxed.

Thirdly, what's left belongs to the person who saves it. What right has anybody to take it just because they think they can?

 

It is not 'tax,' it is theft.

If they are allowed to get away with this there is nothing they won't do.

 

Yet still the bankers who caused it go unpunished, are still obscenely overpaid, and still pocketing huge bonuses.

 

Where's the justice in that?

[Cavegirl]

I have an idea for the Cypriot people, but perhaps an economist on here could tell me if it's a bad one.

 

I don't think the Cypriot banks are afraid of a bank run in this situation, in fact they might well be counting on one. If the Cypriots withdraw their savings, the Central Bank can flood the Cypriot banks with money equivalent to the withdrawls on the gamble that over the next five years or so the savers will gradually return the money they've withdrawn to the same banks and so the money leant out can be returned to the Central Bank.

 

In the meanwhile the Cypriot banks have a huge new injection of cash that they can lend out on short term, reasonable return investments thus making the money to pay back the interest on the Central Bank loans and making some profit for themselves.

 

If the Cypriots were really smart, rather than returning their savings to their bailed out banks, they would put their money into accounts that aren't related to the Central Bank debts, let them take the loss (a loan is always a gamble), let their bailed out banks go under and then rebuild a new banking system in a decade or so when the new banks aren't tied to the debts of the old banks and so don't need to be repaid. The Cypriot economy doubles as their debts are reduced.

 

A bank run when your currency is tied to gold is a disaster, a bank run on 'made out of fresh air' fiat currency is a tool that can be manipulated by all parties.

[Cyclone]

An injection of cash like that would cause rampant inflation, the cypriot banks large balance sheets are largely funded by foreign deposits, so a run on the banks and the permanent flight of capital and diminution of the banking sector is precisely what they don't want.

[L00b]

An injection of cash like that would cause rampant inflation, the cypriot banks large balance sheets are largely funded by foreign deposits, so a run on the banks and the permanent flight of capital and diminution of the banking sector is precisely what they don't want.

There's one thing I've been wondering about as well: reportedly, CY banks have forbidden/disabled online transfers (to anywhere) while this is going on.

 

That appears to be contrary to one of the most elementary EU principles, the freedom of capital movement intra-EU (on par with freedom of personal movement). Specifically, it appears to breach Article 63 TFEU:

Article 63 (ex Article 56 TEC)

 

1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.

 

2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.

EDIT - and ECJ Case Law on statutory exceptions to Art.63 is not looking good for the CY Gvt either.

 

I wonder how CY are going to sort that one, as that temporary (confiscatory-) ban is most probably an easy legal challenge for those concerned...I very much doubt 'temporary technical difficulties' would cut it as a viable defence