Cyprus and Europe reach a deal. They plan to soak the rich.

[^_^ 5,021]

Cyprus's president and the European Union have agreed the outlines of a rescue deal that would see the creation of a "good bank" and a "bad bank".

...

The proposal involved shifting deposits below 100,000 euros from the Popular Bank of Cyprus (also known as Laiki) to the Bank of Cyprus to create a "good bank".

Uninsured deposits -- those above 100,000 euros -- would be held and would face a heavy levy, the officials said, and the bank would then effectively be shuttered. It was not immediately clear how big the levy would be.

http://www.reuters.com/article/2013/03/24/us-cyprus-parliament-idUSBRE92G03I20130324

[I AM NOT THAT GUY 5,715]

Most of the larger deposits are Russian Drug money, so why not?

[Mr. Big Dog 10,747]

[quote name=' timestamp='1364169319' post='6074602]It was not immediately clear how big the levy would be.

I've read something in the 40% neighborhood. They should levy all deposits which have been lured to Cyprus with interest rates of 4.5% and up to 6% where elsewhere in Europe you would receive less than 1% for the same deposit in this low interest rate climate. Higher return comes with a higher risk, no? Iceland, by the way, did something very similar to get out of their bind back in 2008. They refused to cover deposits in their failing banks which belonged to foreigners - effectively telling all foreign depositors to go ** themselves. Worked in Iceland - the courts just validated Iceland's course of action back in January. Think the UK and Netherlands sued and lost their case against the little island nation. Only difference is that Cyprus is tied into the EUR. The Russian oligarchs will be mad.

Edited March 25, 2013 by Mr. Big Dog

[SMR 368]

So would the levy be on everything above 100,000, or on every deposit above 100,000? That is, if I have 100,001, is my exposure 1 or 100,001?

[Mr. Big Dog 10,747]

So would the levy be on everything above 100,000, or on every deposit above 100,000? That is, if I have 100,001, is my exposure 1 or 100,001?

1 the way I read it. Deposits are insured up to 100K.

• Laiki’s uninsured deposits are sent to the bad bank, where their ultimate haircut will depend on the recovery of the assets sold from its balance sheet. Whenever those sales conclude. The process should be pretty uncontroversial, surely (it’s how bad banks work) but the hit is clearly expected to be biblical if the €4.2bn figure applies. I wouldn’t hold my breath for a Reserve Primary-style 99 per cent recovery, would you?
  
• What happens to BoC’s uninsured deposits is more interesting. Again, freezing the deposits might not set a massive precedent but this all being done to achieve recapitalisation (through a swap into equity) rather than through a full wind-down process. It happens in emerging markets (sometimes) but this is new for the eurozone. Charlemagne says the haircut could be 35 per cent. Would large depositors have preferred taking a double-digit tax (a cost of doing business?) over being frozen for an unspecified period of time? Something to ask your Cypriot MP last Monday.
  

http://ftalphaville.ft.com/2013/03/25/1437052/scratch-one-stupid-idea/

So haircut of 35% on deposits >100K at BoC and likely much larger for deposits >100K at Laiki.

The lesson that many still haven't learned (again, this happened before in Iceland): If a bank offers you 4 to 6 fold the interest rate on your deposits as the average bank in the region would - beware.

Edited March 25, 2013 by Mr. Big Dog

[I AM NOT THAT GUY 5,715]

I was reading this morning all deposits over $100,000 would be converted to bank shares, at a commission rate (the "levy") at around 40%. They have to figure out how much money is actually left after the run on the banks, and do the arithmetic, to set the actual loss to the depositors. This could mean that the initial levy may not be the total of it, for the "investors".

[Mr. Big Dog 10,747]

I was reading this morning all deposits over $100,000 would be converted to bank shares, at a commission rate (the "levy") at around 40%. They have to figure out how much money is actually left after the run on the banks, and do the arithmetic, to set the actual loss to the depositors. This could mean that the initial levy may not be the total of it, for the "investors".

Yeah, it's a raw deal for the large depositors. The "haircut" on the deposits in excess of 100K may well turn out to be more of a "shave". But then again, these depositors were taking their money to banks that offered interest rates that were simply unreal. High return = high risk. It's how shyt works. I mean, show of hands: who gets 6% on their deposits these days?

[I AM NOT THAT GUY 5,715]

Yeah, it's a raw deal for the large depositors. The "haircut" on the deposits in excess of 100K may well turn out to be more of a "shave". But then again, these depositors were taking their money to banks that offered interest rates that were simply unreal. High return = high risk. It's how shyt works. I mean, show of hands: who gets 6% on their deposits these days?

I have an interest checking account and a passbook saving account. Last year they went from annual rate of 0.3% to 0.05% at the beginning of this year. What a joke!

Edited March 25, 2013 by The Patriot

[Póg mo 1,749]

I was reading this morning all deposits over $100,000 would be converted to bank shares, at a commission rate (the "levy") at around 40%. They have to figure out how much money is actually left after the run on the banks, and do the arithmetic, to set the actual loss to the depositors. This could mean that the initial levy may not be the total of it, for the "investors".

A hair cut of 40% is an absolute gift, considering the alternative!

[natty bumppo 297]

Most of the larger deposits are Russian Drug money, so why not?

sets the stage for you ... donate ....

[I AM NOT THAT GUY 5,715]

sets the stage for you ... donate ....

Marc! What are you using Natty's account?