Post Cyprus: The Way of coming Bank Runs

(News & Editorial/ Post Cyprus: The Way of coming Bank Runs)

post cyprus

 A.  Further EU bank runs inevitable after the failure of Cyprus Popular Bank
25 Mar 2013,, by Peter Cooper, Arabian Money
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After all-night talks EU foreign ministers have agreed a new bailout package for Cyprus but one that imposes much tougher penalties on large depositors than the first deal. Depositors with more than 100,000 euros at the Cyprus Popular Bank will be wiped out while those holding more than that sum at the Bank of Cyprus will lose 40 per cent.

The draconian move on larger depositors will inevitably provoke a run on the banks in other heavily indebted EU nations with fragile banking sectors, namely Spain, Portugal, Greece and Ireland. At the very least depositors will want to split larger amounts to hold no more than 100,000 euros in any single bank.

 New deal
The latest 11th-hour Cyprus agreement calls for Cyprus Popular Bank closed and split. Bank of Cyprus will take over the viable assets of the failed bank along with nine billion euros in central bank-provided emergency liquidity aid, reported Bloomberg this morning citing EU officials.

Deposits of less than the EU deposit-guarantee ceiling of 100,000 euros will be protected, but the uninsured depositors at Cyprus Popular are to be ‘largely be wiped out.’

Having safeguarded the majority of smaller depositors the way should now be open for the Cyprus parliament to approve the deal and avoid a financial collapse. The cost, however, is very high and not only for the non-insured depositors. The island’s lucrative offshore banking sector is in tatters and its reputation irreparably ruined.

Will EU finance ministers live to regret their action? It works at the democratic level but is something of a disaster for the EU banking system which will now have to suffer another round of damaging bank runs by larger depositors scared about losing their money in a future banking collapse.

Fear is contagious
Ironically it is that very fear that now might cause another banking failure elsewhere. Banking is a matter of trust and confidence. The fall-out from the Cypriot banking affair is not going to be nearly as easily contained as signing off a rescue might appear to make it.

Can EU banks now be trusted as custodians of larger sums of money? Well yes, evidently some can and some cannot. The marketplace will now decide which banks close next.

The winners are going to be the banks of Germany and Austria, and outside the EU money will seek new financial centres like Istanbul and Dubai, though probably not Beirut or Bahrain given current security issues. The UAE gave an unlimited, three-year guarantee to all its bank depositors in the global financial crisis.


 B. The Reality Is The Financial System Could Fail At Any Time
23 Mar 2013,, editorial by Egon von Greyerz
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Cyprus is a momentous event. Losses could be in the tens of billions of dollars. But like all major crises there is always a catalyst, and whether it was a shot in Sarajevo (assassination of Archduke Ferdinand which started World War I), or the fall of the Credit-Anstalt in Austria in 1931, there is always an event in history which people look back on as the start of tremendous global turmoil. Cyprus could very well be that event.
[Give the event time to brew across the global population; give people a chance to rate their national economy and their political systems. Places where there is a lack of trust, a potential for state bankruptcy or banking failure, “runs” may follow. If you want safety in this “climate” reduce your bank exposure now; closures are kept secret until a weekend then are announced when it’s too late for you to act.  Mr. Larry]

There will be some kind of solution eventually to the Cyprus problem, but it will be seen as unsatisfactory in the fullness of time. It is unlikely to come from Russia because I don’t think Europe would like to see Cyprus become an entirely Russian state, which would of course be the case if Russians were to give their support in a major way.

“But whether the bailout comes from the ECB or the IMF, of course they have no money.

“The IMF is financed by the US and Japan, and they have no money either. So wherever the money is going to come from, it isn’t there. It has to be printed, and we know this will impact world currencies and gold.

The Cyprus banking system was too big, it was about 7 times their GDP. But we have the same situation in Switzerland, the UK, and Singapore. If banks lose even 5% of their capital, they have lost all of their capital and they are bankrupt. And most banks in the world already have unrealized losses in excess of 5%.

My view is that banks will have losses of 25% or more in coming years that they will have to recognize. This means the world financial system will fail as central banks will be forced to print unlimited amounts of money. Now the US banks are slightly smaller in terms of GDP, but of course the US has more derivative exposure than any other country. I strongly believe the derivative exposure is more than a staggering $300 trillion, and US banks have no reserves whatsoever to cover the losses on these derivatives.

The other problem is that whatever happens in Europe will also impact the US because the global banking system is totally interconnected. What is happening in Cyprus will absolutely spread to Spain, Italy, Greece, France, the UK, and eventually to the US.

At some point there will be panic, and this is when the central banks will flood the markets with unlimited amounts of money. Japan is totally committed to money printing and so is the Bank of England. Cameron has given the green light to the incoming Bank of England leader, Carney, and of course the ECB must print money because of all of the problems they have with the member countries.

 [Question: Do you know a precious metal dealer where you can buy gold and silver bullion coins? Once you’ve set up an account, give the dealer a call and talk to one of the staff about the simple procedure. Note: Unless you can walk into a local precious metals dealer, it takes roughly two to three weeks from the time you mail the cash for an order, until you receive the coins or bullion bars by mail.
Removing your paper currency from a bank saving account and buying personal precious metals is NOT something you can wait to do until after the public recognizes things have turned “sour”. You have to be ahead of the “curve”, ahead of the system that will be making the grab. Greedy governments will be attempting to rob your cash value, either by taxing your bank account or devaluing it purchasing power through inflation, or both. Mr. Larry]

What’s happening in the European economy is absolutely disastrous. Countries are suffering tremendously. If you just look at Italy, there are 1,000 companies going bust every day. There is a similar pattern in Spain and Greece. So Europe will print. They will have to print with all of these companies going bust.

Bernanke will also continue to print, and with the US economy turning down he will print even more. So as the governments print money, they will have to eventually recover it by grabbing the money from the people. So they will, as in Cyprus, tax deposits. That will happen worldwide.

They will also nationalize pension funds. We’ve seen the nationalization of pension funds happen in several countries already and it will happen in Europe and the US. They will also force depositors to buy government bonds. It is also guaranteed that taxes will go up in all countries as deficits continue to soar. So this will be a year of incredible turmoil. This will be the year in which we see a major change in the world because the 100-year Ponzi scheme will really start to collapse in 2013.

The most important point I want to make today is how absolutely critical it is for investors to preserve their wealth. The crisis in Cyprus is yet another sign of the massive destruction of wealth that we will see in the financial system in coming years.

Investors must heed this warning and get their assets out of the banks now. The reality is the financial system could fail at any time and this is why investors must act today. See what’s happening in Cyprus: Banks are closed and whether people have cash, stocks, or gold in the bank, they won’t get it out of there.

This is why back in 2002 we told our investors to put up to 50% of their assets into physical gold and silver, and also advised them to store it outside of the banking system. The bottom line is that gold is guaranteed to reflect the massive money printing we will continue to see worldwide.”


 C.  Cyprus  Bailout, and Twilight of the Financial Crisis
25 March 2013, by Morgan Housel
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Poor Cyprus is in terrible shape. After securing a bailout of its banking sector, the tiny island nation faces an economic adjustment virtually assured to lower the quality of living for most of its citizens. Much of the Cypriot economy relied on an oversized banking sector funded by overseas cash. That spigot is now shut off. Societe General analyst Michala Marcussen wrote this week that “Our Cypriot GDP forecast entails a drop of just over 20% in real GDP by 2017.” A depression by any definition.

But outside of the direct impact on Cypriots, there was one part of last week’s bailout process that I found positive. When faced with the prospect of another European country collapsing, and the serious possibility of a member leaving the euro, the response by the global financial system wasn’t panic or dread, but a shoulder shrug. Headlines of “Cyprus bailout deal falls apart” and “Dow hits a new record high” could be found on the same day. This would be unthinkable two years ago.
[Because the government and captive national news media have an agenda: “Don’t panic the ‘sheeple’, keep them calm… its good for business, our business….we’ll continue to ”sheer them’  until we have things in place to make a calculated change, until then, we’ll blame another nation if the broken wheel falls off the wagon – I’m sure you understand the metaphor. Mr. Larry]

Cyprus is tiny, mind you. Its annual GDP equals what Apple earns in profit every seven months. But Greece is also tiny, with an economy the size of Minnesota’s, and its teetering from 2010 through last summer shook global markets to the core.

When Greece looked near imminent collapse, the worry was not that the country’s output was imperative to the global economy, but that a collapse of its banking system and exit from the euro could spread throughout Europe. The same argument could have been made for Cyprus last week. The original bailout deal called for a portion of all deposits in Cypriot banks to be levied, sending a message to depositors across the continent that your money may be far less safe than once thought. Banking relies on confidence, and Cyprus buried confidence six feet under.

And yet! The Dow still trades near an all-time high. London’s FTSE 100 trades at the highest level in five years. Germany’s Dax index is near an all-time high. The MSCI World Index, one of the broadest measures of global equities, sits near the highest level five years. Gold, a proxy for panic, wiggled around last week, but trades lower today than it did at the start of the year, when many didn’t even realize Cyprus was a country.

Contrast this with 2011, when a possible Greek collapse and euro exit sent the Dow down nearly 20%, global stocks down by a quarter, gold up by 40%, and churned up more than 10 million references to the phrase “double dip recession,” according to Google. The market’s response between then and now could hardly be more different.

There are a couple explanations for this, some more frightening than others.

One is that we are all oblivious to what’s going on in Cyprus. It takes time to sort through details, and it’s entirely possible that the chaos will begin only when the dust starts to settle and we realize who is holding what, and who has nothing left to hold. Indeed, our own banking collapse and bailout commenced in September 2008, but the panic didn’t take off until October and November that year.

Another possibility, which I think holds at least some truth, is that we are entering a new phase in the global financial crisis. We’ve calmed down and are taking more deep breaths. Dire headlines are now treated with more equanimity as investors sort through news and take a long-term view of the consequences, rather than the sell-now-think-later approach that prevailed for most of the last five years. News of a crumbling banking system and bailout is nothing new to us anymore. We have been there, done that, and read the same story over and over again. But news of higher employment, a stronger housing market, and booming energy production is new, taking many by surprise, and so it appears to be getting the most attention.

Sentiment can change on a dime, and I wouldn’t dare guess what happens next. But I think our response to Cyprus is evidence that we are moving on from the torment of the last crisis. Good riddance.

-= $ =-


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