The bank run in Cyprus, is another one of the ‘once in a lifetime’ events we are witnessing for the second or third time in our lives.
The last such event I distinctly remember is the bank run on Northern Rock in 2007. Atleast that time, the Bank of England stepped in announced that they would guarantee all deposits in the bank, a marked deviation from existing guarantee limits as documented by MSE.
The amount has been changed three times. First on the back of Northern Rock, then Bradford & Bingley, then to bring the UK in line with the rest of Europe.
If you’re one of the very few who still have outstanding issues, the amount you get will depend on the time of the ‘compensation trigger’.
Defaults between 7 Oct 2008 and 30 Dec 2010: If your bank went bust between these dates, you’d get back the first £50,000 per person, per institution.
Defaults between 1 Oct 2007 and 6 Oct 2008: You’d get 100% of the first £35,000 back.
Defaults before 1 Oct 2007: You’d get 100% of the first £2,000 of your cash back and 90% of the next £33,000 on top; so you’d get £31,700 of the first £35,000 back.
Admittedly, the conditions were rather different, and the BOE and Alistair Darling were first and foremost trying to calm down fears of small depositors. The Cyprus situation seems to be one where depositors, even small depositors are being given no protection whatsoever. By imposing a 6.75% tax on those with savings below €100,000 and a 9.9% tax on those with deposits over €100,000, this is effectively an overnight haircut. Deposit insurance programs do involve some degree of a haircuts, but it is surprising that the Cypriot officials have imposed one on small depositors too. Not that they might have had a choice. As per the BBC,
The Germans, however, were not prepared to support a larger bailout. They suspected that half of the deposits in the island’s banks were held by Russians with much of the money being laundered. Rescuing high-rolling Russians could not be sold to German taxpayers.
I the coming 6-9 months, I expect similar conditions to take place in atleast one of Spain, Portugal, Italy and Greece. Perhaps in even two of these countries. All of them face political uncertainty in addition to fiscal uncertainty, and that is never a good combination even at the best of times.