Cyprus update, evening of 3-24

Time is running out. The deadline appears to be opening of business on Tuesday. That puts it sometime extremely early in the day Monday here in California.

One of the fascinating things I’ve learned about blogging is you have to write and lock your words in print (pixels?) not knowing how events will turn out. Know what? That’s part of what is making it so much fun.

Current plans being floated

The negotiations over the Cypriot banks appear to be quite intense.

Cash withdrawals at the two troubled banks are reportedly limited to €100 a day. That’s about $130. No reports of withdrawal limits at other banks.

Current plan, according to the Guardian, would be to

  • hit uninsured depositors at one troubled bank with a 25% haircut,
  • seize/tax/expropriate 5% of uninsured deposits at all other banks, and
  • leave insured balances alone.

While honoring deposit insurance is a good thing, seizing 5% of all insured deposits would be a bad thing, in my opinion. Having the national and European regulators pondering what percentage of individual depositors money to take is a bad place to be. Can you spell contagion?

European regulators are insisting the Cyprus government shrink the size of their national banking system. I think taking 6.75%, or 9.9%, or 25% of accounts will go a long way towards shrinking their deposit base. Won’t take more than a few days after capital controls are removed.

Deposits from Russian citizens

Various reports have indicated a lot of the deposits in the oversized banking system in Cyprus are from wealthy Russians. Here is some key background I’ve not seen previously on the concentration of deposits, according to an article in the Guardian:

Russians are estimated to hold more than €20bn of the €68bn deposited in Cypriot banks. Some €38bn of the total is in accounts liable for the levy, suggesting that Russians could forfeit around €3bn.

That would mean there are probably a lot of super-rich Russians who are quite upset right about now.

Size of Cyprus economy

By the way, let’s put the size of the Cypriot economy into perspective.

Their GDP is equal to about $US23B. That is smaller than any state in the U.S. Vermont has a GDP of  $26B.

The California GDP is about 85 times larger than Cyprus.

Update: Carpe Diem makes this same point on 3-25:  Putting the size of Cyprus’s economy into perspective: it’s smaller than Akron, OH and El Paso, Tx.

Here are a couple good articles this afternoon:

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