Megan McArdle on the most recent “concession” by the Cypriot bank regulators:
Cyprus seems to have realized what I wrote yesterday: violating your deposit insurance guarantees is a better way to start a bank run than to stabilize a banking crisis. After Cypriots rushed to withdraw their money ahead of the new rules, the Wall Street Journal reports that the government has cobbled together a new proposal: small depositors will pay a 3% “tax” on their accounts (instead of 6.75%); medium depositors (those with between €100,000 and €500,000 will be taxed at the same 10% they were supposed to pay before; and those with more than €500,000 will pay 15%.
That may check the runs on the small accounts. Now the question is: what about the big ones? Will the foreign depositors view 15% as the simple cost of stashing their money out of the watchful eye of their own government? Or will they seek a new haven?
If the foreign money runs, it seems unlikely that Cyprus will be able to bail out the banks again; this desperate bank levy is, after all, what they were forced to do just to raise the $5.8 billion that the EU and the IMF demanded they contribute to the bank rescue. But the higher Cyprus raises the levy on large accounts, the more likely it is that the foreign money will flee to somewhere less shaky.
By “less shaky”, one has to assume a non-European bank…
Update: Cyprus has extended the “bank holiday” to Thursday.
Utter Bullsh!t. When governments sieze savings they are on their last legs. Just because people were smart enough to put some money by, doing without in some cases, does not give the government the right to rob them. I can see the thought process of many people now, why save money when the government will rob you of it someday, better to spend it all now and then have the government give you money!
I can’t imagine the bankrupt intelligence that thought that one up, unbelievable.
Comment by Dwayne — March 18, 2013 @ 10:23