Adrift

[rain_gryphon]

Today's events in Cyprus are frankly frightening. It seems that in the EZ, at least, depositor's insurance is no longer to be relied upon. That's been the mainstay of world banking since the Second World War, is the certainty that a small depositor's money is safe up to a certain value ($30k here) regardless of what happens to the bank. Now that's swept away in a single day. This bodes very ill.


Edit: And whoever decided that a writedown should be termed a 'haircut' deserves to be punished.

Comments

[pyesetz]

Here it is Sunday and *finally* the front page of Google News has something about Cyprus: "Yen firms, Asia shares fall on jitters from Cyprus deal".  But if you had been getting your news from Google all along, you wouldn't know what the "Cyprus deal" was!

McClatchy is even worse.  Not only is there nothing on the front page, there's nothing on *any* page.  A search for "Cyprus" shows that they haven't thought that country was worthy of mention since last September, when the UN ambassador from Cyprus condemned the events in Syria (because Syria matters while Cyprus doesn't).

Nothing to see here.  Move along.  If you're feeling nervous, go on a shopping spree!  TPTB need you to be spending your money, because God knows it isn't safe in banks.

[xolo.livejournal.com]

Obama is having wet dreams, I'm sure, over the precedent that a government agency can simply sieze as much of people's money as it wishes, without all that messy and troublesome 'democracy' stuff.

[loganberrybunny.livejournal.com]

This has been a very big story here, perhaps unsurprisingly given that we have 25,000 Britons resident in Cyprus and 3,000 service personnel still based there. The latter will be compensated by the UK govt, but I don't know what the situation is for the former. Judging by the interviews I've seen, most Cypriots thought that the levy would only apply to deposits above the insurance ceiling (€100,000) and not those with just a few euros in the bank.

As far as the UK is concerned, it strikes me that it was only about five years ago that the insurance ceiling was substantially raised (from £35,000 to £85,000) -- but that means nothing if a government can do this. Obviously we're not in the euro, but interest rates are already so low that having a savings account seems almost pointless to many people. I suspect there may be an increase in the number of people going back to the old "banknotes under the mattress" days.

[xolo.livejournal.com]

Judging by the interviews I've seen, most Cypriots thought that the levy would only apply to deposits above the insurance ceiling (€100,000) and not those with just a few euros in the bank.

It should have. That's why deposit insurance has a cap to begin with, is so that major players are still exposed to risk and will put their money in banks that act sanely and don't overextend themselves, bringing pressure on banks to act responsibly. I'm quite in agreement with the overall stated goal, as I think the banking system has gotten badly out of control. Some of the larger players need to get burned, to reintroduce an element of caution back into investing.

Making small depositors assume that risk as well is pointless, since they lack the tools to assess risk. All that's going to do is undermine confidence in the banking system.

And this goes back to what I was saying in your post about Swiss banking laws a few weeks ago. If this is the best that all of these high-powered banking experts can manage, then driving them away is little loss. They seem so lost in esoterica that they can no longer see the basic purpose of having banks.