Mar 162013
 March 16, 2013  Posted by at 12:51 pm Finance

Overnight last night, the Eurogroup (Eurozone executive committee) negotiated a deal for a bailout of the banking system in Cyprus. As part of the deal, a one-time, one-off levy on depositors was agreed: deposits below €100,000 are subject to a 6.75% levy, while those over €100,000 are subject to a 9.99% "fine".

While none of the timing is surprising – late Friday, early Saturday is always the ideal time to push such measures down people's throats -, neither did it come as a surprise that a bank run ensued as soon as those few Cypriot banks that do business on Saturday mornings, opened their doors.

This had been foreseen, of course. And so capital controls had been set up beforehand. In this case, limited deposit withdrawals and a full suspension of internet banking. The justification for all this can be found in the large amounts of Russian – allegedly black market – deposits in Cyprus. But while that may be presented as justification, it's by no means not where the potential fall-out will halt.

After all, what's to say that what can be done to depositors in Cyprus' banks, cannot just as easily be repeated for Greek, Italian, Spanish ones? If the EU wasn't yet scared enough of Beppe Grillo and his still surging popularity, now would be a good time to start being afraid. While everyone's focus is on the Russian mob, nobody (just read the press reports today) talks about the law-abiding Cypriots who see their hard earned savings wealth forcibly taken from them. Nobody but the likes of Grillo, that is. Who said earlier this week that (northern) Europe would drop Italy like a stone once German, French and Dutch banks have shed their risky Italian assets.

Besides, if you think the Russian deposit holders are fatally wounded right now, think again. They've seen this coming for at least 6 months, they've had all the time they need to move assets around, and, if anything, will simply use this decision to launder a lot of capital, and happily pay a 10% fee for the honor.

Cyprus is small, and the hope is that hardly anyone will notice what happens there, or be interested. But throughout the Eurozone over the past five years, deposit guarantees have risen, in a so far pretty successful attempt to prevent bank runs. Overnight, that model has now been thrown out with the bathwater. And all of Europe should be wary of what happened. A precedent has been set, and what's good for the goose fits the gander.

Not that German, French, Dutch depositors will lose sleep right this moment, but then that's precisely the idea. The EU core nations have so far been able to convince their citizens that they are rich and their economies recovering, and everything's under control. Moreover, the story that Russian criminals get a 10% haircut goes down well among the respectable citizenry. What happens if and when Italy or Spain need a bailout like Cyprus is not even considered. But maybe that's not so smart.

The Cyprus bailout was ostensibly executed to "save the Eurozone”. And it was presented as a one-off. But so was Greece and its forced haircuts for investors. You can only have so many one-offs and remain credible. European economies are all still deteriorating, though admittedly there are a few choice German numbers that are not all bad. But there can be no doubt that pressure on the EU/Eurogroup to step in again in some country will arise some time soon. Will that country's depositors leave their money in the bank when that threat becomes real, or will they take it out? What would you do now the Cyprus example is in place?

It's true that Cyprus banks are bloated with assets at 800% of GDP. That's about the same as Ireland, and everyone agrees that "something must be done". Iceland once stood at 1000%, but it's an order of magnitude smaller even than Cyprus, and not a Eurozone member, just like Malta, which presently stands at 1000%.

The picture may change for other Europeans, however, when they realize that overall EU bank assets in 2012 were 366% of GDP, at €47.3 trillion ($61.5 trillion). And if those numbers look too abstract, here's a comparison: in 2011, US bank assets were at 74% of GDP (€8.6 trillion), and Japan's 178% (€7.1 trillion). How about that for perspective?

Among individual member nations, bank assets vs GDP differ. France and The Netherlands clock well over 400%, Germany, Spain and Portugal over 300%, while Italy is well below 300%. That almost makes the latter look like a cautious nation, until you look at issues like government debt.

Overall, these numbers draw an excellent picture of why it's so hard to agree on a banking union. Actually, it's merely a part of the picture, but it still speaks loud enough. That banking union will, guaranteed, even if it is at some point established, never include the UK. There, bank assets are quite a stretch over 500% of GDP, and there are estimates that put that number much higher still. There is no doubt that Britain has a hugely bloated financial sector, i.e. The City, and it has no other policies in place than to protect it, let it grow even further and increase its economic dependency on the financial sector.

With total EU bank assets at €47.3 trillion, private sector deposits at €10.2 trillion (equal to total UK bank assets) and total deposits at €17 trillion, there's a substantial gap (or several), comprised to a considerable extent of risk-carrying assets. This risk, when combined with overall plunging economic prospects, leaves Europe with a poisonous financial mix. And as much as those involved can try to smooth-talk it all over, you can bet your donkey that for the law-abiding hard working citizens of the next rescue case, the world will be cast in the gloomy light of what happened to Cyprus on Saturday, March 16 2013.

And they don't even yet have to know that Europe's shadow banking system adds another €17 trillion to the risk picture. They have been sufficiently warned: Brussels has laid out its true intentions on the table. Like a big red flag. In Europe, the much touted government deposit insurance itself has now become a risky asset.


Home Forums Bank Run in Cyprus; Who's Next?

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    Overnight last night, the Eurogroup (Eurozone executive committee) negotiated a deal for a bailout of the banking system in Cyprus. As part of the dea
    [See the full post at: Bank Run in Cyprus; Who's Next?]

    Golden Oxen

    Say’s much about storing ones wealth in Legal fiat tender and trust in it’s issuers.

    “Gold Will Win”


    Black Swan?


    Bank run?!
    Sorry, but most people (hard working or not) have nothing to withdraw except a few hundred euros. The bank runs have already happened, electronically, by the cargo-ship-load.


    Ilargi, can you elaborate a little for me how high (or low) deposit-to-GDP ratios affect a country’s prospects going forward?


    6.75% isn’t so bad in the big scheme of things. I sort of think one way or another, currency and/or flation, in or de, are set to give most everyone a 50% haircut but I can’t define a timeline. If I were a big shot Global Strategic Thinker my plan would be for a haircut like that in steps. Over a decade would be good. Little steps people and the system can tolerate and adjust to. It’s the big leaps that can’t be tolerated. What could be a smaller step than Cyprus?


    Meh, still no bank runz at 1130 EST. Same pics of those 4 people in line at Da ATM.
    This depression will skip the physical bank runs, in Da Periphery. Maybe we’ll get some action in Da Core next week?
    Popcorn on!


    Ilargi (or Stoneleigh): Is there any safety in alternative currencies; I´m thinking Bitcoin for example, or in local barter type currencies, as another example. Or what is it that you would recommend in a world increasingly susceptible to MF Global type heists?


    yyy post=6858 wrote: Ilargi (or Stoneleigh): Is there any safety in alternative currencies

    From personal experience, I can attest that ANY alternative currency will be outlawed, and one could do (serious) time for possessing alternative (Western, in our case) currency. We used Kent cigarettes as alternative currency (google: Romania Kent Currency).
    Of course, YMMV depending on were you live, because peripheral countries usually get that kind of treatment; if you’re blessed to live in [strike]Da Core[/strike] the land of freedom, then your currency might do more than fine, except it might be extremely scarce.

    Mark T

    The following information is from a credit market summary data table on Statistics Canada’s web site:

    The total debt outstanding in Canada at the end of December 2012 (bottom line of the data table) was $5.25 Trillion. From the end of December 2011 to the end of December 2012 the total debt outstanding in Canada increased by $269 Billion. For that 366 day period the total debt outstanding in Canada increased at a rate of $735 Million per day.

    With a total credit market debt of $5.25 Trillion and a gdp (at current prices) of $1.83 Trillion Canada’s total credit market debt is 2.86 times the size of its gdp.


    In principle I agree, we will all lose in the long run. This measure is at least less insidious than us savers losing it gradually over years though low interest rates and high inflation due to QE.

    But what about those reckless and criminal banks and their shareholders bearing the loss? What about a transaction tax across Europe to pay back these banking losses, it desperately unfair that innocent savers which don’t purse high leverage risky deals get to pay up.


    Well done raul . A precursor to the euro collapse.?


    absolutely bob. a shattered trust window.

    TAE Summary

    * Gold will win

    * The bank run has already happened; The black swan is already out of the barn

    * A 7% solution is not as bad as 50% haircut unless you are already bald

    * Cigarettes serve as an alternate currency; A wheelbarrow full of Kents buys a lot of bread; Alternative currencies will be illegal and violators will go to jail; Don’t spend the dime if you can’t do the time

    * Canada’s debt is 2.86 time GDP, Eh

    * Happily in the long run we will all lose but until then it just isn’t fair to the first victims

    * The Euro will collapse and the trust window has been shattered; This is good for printers and glaziers and should help the economy

    * I am altering the deal. Pray I don’t alter it any further.


    TAE Summary,

    It’s great to see you back.

    Regarding your new avatar, , I always liked “Eats, shoots, and leaves.”


    TAE Summary – glad you are back!


    Just like Superman, TAE summary shows up just when everyone has given up hope.


    Regarding bitcoin, a post over on TFMR that I think makes sense:
    Submitted by tmosley on March 18, 2013 – 9:24pm.
    Bitcoin will serve as an excellent temporary money to move cash out of countries despite capital controls. For this reason, I am now bullish on it, though I would not hold it for the long term. It is best held during times of ever spreading capital controls ONLY. If I wanted to get dollars out of the USA after the SHTF, Bitcoin would be my first choice, with gold hidden in clothing and such a distant second.


    good advice:
    Get Your Assets Out Of The Banks – NOW
    Egon von Greyerz
    March 18 2013
    For well over ten years I have advised investors to get their assets out of the banking system. This doesn’t mean just their money but also all other investments (stocks, bonds, gold etc) which are likely to be lost when banks go bankrupt…. Gold (and silver) will continue to reflect the total destruction of paper money that the unlimited money printing will lead to. But investors must hold physical precious metals and they must be stored outside the banking system.


    Well it seems they chickened out and the deal won’t go down. At first I thought they did it out of a belief in their strength. Then I started to think they did it because of frustration and exhaustion. Unable to think of a real solution, because there isn’t one, and sick of pretending and just wanting to go home. It looks like the second and now they look weaker. Still they have a knack for winning even when they lose. In this case it does bring Russia into the mix and so perhaps a new source of some money to throw at the banks.


    Hi All,

    Its seems that most have missed the most important thing we can be doing while the Debt Money Tyrants run theiri beta test on Cyprus – analyze the mechanisms used to defraud the people of their Zombie Money.

    1. It looks like people who hold bonds aren’t being asked to take a haircut.
    2. If someone has bonds linked to their bank account, how can one go about getting access to the money? Is their bond money locked up, too – even if they aren’t asking for a haircut?
    3. Does Cyprus have credit unions that don’t leverage their deposits? Are they shut down as well?

    We really need someone with boots on the ground to sift through the details of the Biggest Finance Capital tactic to achieve their ultimate strategy of ruling the world through an abstract (to most), at least temporarily, anyway, mega corporate structure.

    Also, this is excellent data and analysis by Denninger…

    The Failure Of Debt-Leveraged Faux “Growth”

    While he doesn’t know it, he’s applying the Trivium method – he’s gathering the relevant data, he’s applying logic to it and identifying contradictions and fallacies in order to remove them. Finally, he’s communicatiing the results of his research in a way that’s pretty easy to understand.

    The problem is that very few people understand this intellectual self defense technique, a mental anti-virus if you will, and so they are led to believe that the unreal (the false narrative) is real.

    This cognitive tool set was purposefully removed when the education system was turned into the schooling system because it is such a powerful tool. Research John Taylor Gatto podcasts and Youtube videos to fill in the details with source documents and analysis.

    Easily deceived people will be run into the ditch regardless of any other circumstance, the distinction is the time frame.

    The Trivium For The Win.


    I can’t help wondering why Berezovsky chose this moment to disappear from the stage and whether this was an assisted disappearance.

    In any event, I don’t think Putin did it as Berezovsky was a spent force in Russia. At one time, he more or less bought up their parliament – but that was a long time ago.

    I would not put it past the British – but they prefer do do this things on foreign soil. What can be more convenient than for the mother of the future king – who had an Egyptian lover – to have a car accident abroad and disappear. I am sure the French demand these sorts of quid pro quo, when they have a similar need. Security services are really legalised gangsters.

    A long while ago, I thought that someone ought to think of a way where people can swap murders – A kills X for B, and in return B kills Y for A. The job of the police would be quite impossible if A does not have any link to X and B does not have any link to Y. It would make a good screen-play, IMHO.


    @Nassim: The title sould be Banksters VS Russian Oligarchs: Fatality!

    Somebody finally realized there’s probably no tax to be made in the under 100k savings category. A “deal” was made.
    Banksters win.
    Round 2: FIGHT!


    The banks never had 28 billion euros of the russian money sitting in the banks.

    It was lent to the Greeks.


    jal post=6938 wrote: The banks never had 28 billion euros of the russian money sitting in the banks.

    It was lent to the Greeks.

    jal, it is a giant money laundering scheme, isn’t it?

    The mega banks get the cashola from the busted banks and the German pension funds are put on the line to eventually default so the Germans eat the losses.

    These banksters will aim their media at the different nation states and then get the ignorati all worked up for war without ever realizing they are being manipulated by Biggest Finance Capital – the Debt Money Tyrants.

    The solution is the Trivium mental self defense.

    The problem is explained by John Taylor Gatto’s body of work.


    Reminder: have you gotten your assets out of the electronic system yet? If not, why not?

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