Even with Cyprus’s parliament voting “never mind” to the plan of taking depositor’s money, an invisible line has been crossed

Status as of this moment is the Cyprus legislature voted down the plan to tax all bank depositors in the country to bail out two banks. Background here.

That does not revoke the idea that lots of regulators think your deposits belong to them and the only issue open for negotiation is what percentage of your money they are going to take.

Remember this is a deal to bail out the two largest Cyprus banks. The plan didn’t just hit the uninsured depositors and bondholders of those two banks. If that were the case, this would have been the normal liquidation of a bank. That would be fine.

Instead, here was the status over the weekend:

  • Bondholders of the two troubled banks left intact.
  • Every uninsured depositor in the country to take a 9.9% hit, not just depositors at the two failing banks.
  • Insured depositors at every bank in the country to take a 6.75% hit, in spite of their balances being under the insurance limit.

The line that has now been crossed is that deposit insurance in Europe is only a promise until the bank regulators decide it isn’t a promise. Phrased differently, your deposits belong to the European regulators and they will decide how much they want.

Even with the legislature voting ‘no’, the idea is now in play that governments may or may not stand by their deposit guarantees. Further, depositors in banks that aren’t in trouble can take a hit for other banks that are failing.

For status this morning, see the Wall Street Journal article, Cyprus Rejects Rescue Plan.

Here is a list of players that think your bank deposits belong to them. I extracted all the named players in the WSJ article Cyprus Rescue Risks Backlash:

  • International Monetary Fund
  • IMF Managing Director Christine Lagarde
  • European Central Bank
  • ECB President Mario Draghi
  • ECB executive board member Jörg Asmussen
  • Dutch Finance Minister Jeroen Dijsselbloem
  • EU’s economic-affairs commissioner, Olli Rehn,
  • German Finance Minister Wolfgang Schäuble
  • delegates of Finland, the Netherlands and Slovakia
  • from Cyprus’s executive branch of government:
  • Cyprus’s newly elected President Nicos Anastasiades
  • Cyprus Finance Minister Michalis Sarris

This is not a good thing. 

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