The news from Cyprus on Thursday suggests that banks, which opened for six hours for the first time in 12 days, experienced brisk business but there was no panicky mobbing of the banks with depositors breaching public order in attempts to get at their money. The sense imparted through the media is that there was a strong expectation of a visible meltdown, but it just didn’t transpire, which tends to augur well for the future of Cyprus.
According to commenter John Gallaher who was keeping a close eye on the comings and goings at the Fitzrovia, London branch of Bank of Cyprus on Thursday, the London branch was busy and it seemed there was a steady stream of people making withdrawals.
So, how much money is leaving the Cypriot banking system at present? We just don’t know and you can bet that neither the central bank in Cyprus nor the ECB will offer up this information, unless it portrays a positive message. Like our own central bank here in Dublin, the central bank of Cyprus produces monthly banking financial information, and the latest available is for the end of February 2013 which was published this week, but I cannot see in it details of ECB support for Cypriot banks. Old media reporting suggested that the ECB had lent €9-10bn to Cypriot banks two weeks ago. Haircuts on certain deposits will reduce liabilities in banks’ balance sheets which should also reduce reliance on ECB funding, but deposits flying out the door will do the opposite and force banks to seek alternative sources of cash.
The view on here is that €500m per day may have been exiting Cypriot banks during the 12 day shutdown. But who knows? The central bank of Cyprus and ECB, probably, but they’re staying schtum. If the withdrawals had been modest, I would have expected a statement to that effect. So there appears to be a lockdown in effect on information.
We found out on Thursday that the haircutting of deposits in Cypriot banks might be illegal and unconstitutional.
We also found heard allegations of shenanigans yesterday in Greek newspapers alleging that Cypriot banks had written off millions of euros in loans to, amongst others, Cypriot politicians. Cyprus is regarded by Transparency International as the 29th most honest county in the world, that’s just four spots below Ireland at position 25, so Cyprus is no clear-cut banana republic.
We are in the dark over precisely what capital controls apply in overseas branches of Cypriot banks, with a request for information and comment from here last week, met with a meaningless response.
Al Jazeera is reporting that “Bankers have told Al Jazeera that they will only penalise depositors once all their liabilities have been offset against their assets.” In other words, rack up as much expenditure as possible on your credit card and you can offset that against your deposits. I wonder how many Lamborghinis have been purchased on credit card in Cyprus in the past fortnight? After all, if you have a €400,000 balance at Bank of Cyprus or Bank Laiki, it would make sense as you are facing wipeout of deposits in excess of €100,000.
It remains to be seen if we will see information released by the banks. It seems Cyprus has a weak media and political opposition so idiosyncrasies over the implementation of capital controls are unlikely to be closely examined. Our experience in Ireland has told us that people are reluctant to pursue legal challenges to attempts to deal with the financial crises.
So, all of this may blow over. But I wouldn’t bet on it.
Well the Central Bank of Cyprus and the ECB may well be staying schtum, but Wolfie sure isn’t missing any opportunity to crow and put his foot in it.
http://www.bild.de/politik/inland/wolfgang-schaeuble/wird-italien-das-neue-zypern-29711790.bild.html
He’s at it again today 130330 in a Bild Interview:’Will Italy be the new Cyprus Herr Schäuble?’ The German FinMin says that Cyprus is a special case [ah now here lads…] and that after a painful period of re-adjustment it will be able to pay back its debts on a healthy economical basis.
But he doesn’t stop there…oh nein…our Wolfie goes on to say that this crisis will go down in history as bringing Europe closer together and that we are living in very fortunate times.
!
@DJ-enjoy!!
“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.”
—Jeroen Dijsselbloem, Dutch finance minister, March 24, 2013
http://www.project-syndicate.org/blog/the-cyprus-doctrine-does-not-apply-to-german-pfandbriefe—by-christopher-t–mahoney
Danke @JG
Interesting that that the post refers to the Deutsche Pfandbriefe and HSH Nordbank and NordLB.
HSH Nordbank is in dificulties and has exposure of 1.6bn€ in Cyprus, mostly in shipping with registrations under Cyprus flag. NordLB has exposure 1.4bn€, possibly more, since that figure is from a stress test in 2011.
As I understand it there is approximately a 9% shortfall in Cypriot bank assets, relative to bank liabilities. Stealing deposits is not the way to solve the problem. Shutting the banks is not the way to solve the problem. But, on the other hand, It is a fact that the problem cannot be solved without someone taking a loss.
So, what is the way to solve the problem?
First of all you tell the Sovereign, representing the taxpayer to “butt out” and you let the banking industry solve its own mess. In the U.S., they have deposit insurance, through a levy on the banks, but it is funded by all the states, and the problem is mutualised. So if banks in New York or Ohio get into trouble, there is money to resolve it. In the euro zone, each country has its own inadequate national deposit insurance scheme. In Cyprus, that scheme is funded by its government, which is broke, so there is no deposit insurance. That principle applies to each of the other PIIGS. So, separate the banks and the State. Why were they ever “joined at the hip”?
There needs to be a Europe-wide banking union with deposit insurance, which would provide all that the eurozone needs to solve issues like the Cyprus banking crisis without any sequester of deposits. Expropriating deposits is not the way. Everyone can now see that european banks are not safe. The emperor definitely has no clothes, and all but the most gullible now knows it
Europe’s banking system is undercapitalised. The Irish banks are bust . Moody’s tells it truthfully – and its not just because of the Cypriot banking crisis (as the spin masters would like us to believe), it’s because the Irish banks have not yet come to grips with the losses in their bellies. All the Irish banks claim to be well capitalised, but it’s a spin – the still-to-be recognised losses are on their books. They can’t borrow or raise sufficient capital from private-equity sources – they can attract a few vultures, like Bank of Ireland, but it’s not re-capitalising them so that they can lend in order to enable the economy to grow. The actual and only recourse they have is to withdraw assets from risk, which means calling in loans.
Two years ago, the idea that banks in Europe would fail was unthinkable; now it is a fact. Europe is experiencing a depression caused by a retraction of credit as a result of a busted banking system, and there is no policy in place to remedy the problems in the banking system. A business cycle has inherent forces that brings about recovery. A depression doesn’t. It requires a policy response to end it. Bill Clinton spelt it out, but we turned a deaf ear – and still do.
For the capital adequacy of banks to be restored (which they eventually must) using only the current policies, it requires that we suffer a deeper credit crunch than we have now.
In the U.S. in 2008 and 2009, they introduced a public policy. It wasn’t a fiscal policy, and it wasn’t a monetary policy – it was a public policy. That policy ensured that no bank would be undercapitalised. It allowed any bank to take any amount of money for any period to rebuild its capital base, without any questions being asked, to ensure that it wouldn’t fail. As everyone is aware, it was known as the TARP. Right now, we need a funded euro TARP We don’t have it for various social reasons, mainly linked to the German fear of inflation.
And that is why, without a similar plan to recapitalise our banks, the problems will take much longer to solve.
To me, all this proves, once again, is that the closer you are to people the more you care and you act accordingly. And when the distance is great as in Berlin, Brussels or Amsterdam (or as Michael Noonan proved – Dublin) from Nicosia, and the action that we take doesn’t affect us directly, we care much less. It is the principle reason why the “european union” will fail and will never truly be a union.
Is it possible to get the bankers and the politicians to care and realise the effect of the consequence of their actions on the well-being of those that they have been charged with serving? I doubt it. The EU inspired actions of last week mean the loss of thousands of jobs in Cyprus and the death of their banking industry.
With a 60% haircut on deposits over €100,000, why would an investor want to put money at risk in Europe at low rates of return when they can move money to any other – think Asian – economy. That’s where there is money to be made. And thats’s where investors will be moving to increasingly over the next few years.
The distance between the privileged elite in Europe – the Autocracy – and the people that they now rob in order to retain those privileges is too great. Germany has found a new export – repression. But maybe it’s just a favourite old export, reborn.
@NWL
That is the first I heard about ‘The letter’.
It is a letter effectively written by the ECB, as the Central Bank of Cyprus is part of the ESCB.
Simply excellent paper on Cyprus and its options,full of great links too,worth a..
https://docs.google.com/presentation/d/1M8kVBmI1W8reyftuApqwiSMBYeobJmEdsNezZ0y0fog/edit?pli=1#slide=id.p14
The debts of two or max three of our top ten developers could cover Cyprus’s debt. We are a great little country!
@ICT,
Not really. That’s how inaccurate rumours start.
the inevitable leaked docs…….
http://blogs.r.ftdata.co.uk/brusselsblog/files/2013/04/DSA-9-April2013.pdf
http://blogs.ft.com/brusselsblog/2013/04/cyprus-oddities-in-leaked-bailout-documents/?
Ireland/Portgual loan options courtesy the FT and Peter Spiegel….with a a
http://blogs.r.ftdata.co.uk/brusselsblog/files/2013/04/IrelandPortugal.pdf