The announcement to keep the banks shut last night by the Central Bank of Cyprus came hours after it said all banks except the country's two largest lenders, Laiki and Bank of Cyprus, would open today.
Banks have been closed since March 16th to avert a run on deposits as the country's politicians struggled to come up with a plan that would raise enough funds to qualify for an international bailout.
Reference The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! It won't work.
An initial plan that would seize up to 10 per cent of people's bank accounts had spooked depositors and was soundly rejected by MPs.
All except the country's two largest lenders had been due to open today after the country clinched an 11th-hour deal with euro zone and the IMF to provide Cyprus with a bailout.
Without that deal, the country's banks would have collapsed, dragging down the economy and potentially pushing it out of the euro zone.
But last night the Central Bank of Cyprus said that "for the smooth functioning of the entire banking system, the finance minister has decided, after a recommendation by the governor of the Central Bank, that all banks remain shut up to and including Wednesday".
ATMs have been functioning, but many run quickly out of cash, and a daily withdrawal limit of €100 was imposed on the two largest lenders, Bank of Cyprus and Laiki.
These are the capital controls I clearly warned of last year that are not supposed to be legal.
Under the deal reached in the early hours of yesterday morning in Brussels, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks to secure the €10 billion bailout.
The new plan allows for the bulk of the funds to be raised by forcing losses on accounts of more than €100,000 in Laiki and Bank of Cyprus, with the remainder coming from tax increases and privatisations.
People and businesses with more than €100,000 in their accounts at Laiki face significant losses. The bank will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.
Deposits at Bank of Cyprus above €100,000 will be frozen until it becomes clear whether or to what extent they will also be forced to take losses. Those funds will eventually be converted into bank shares.
It is not yet clear how severe the losses would be to Laiki's large bank deposit holders, but the euro finance ministers noted the restructure expected to yield €4.2 billion overall. Analysts have estimated investors might lose up to 40 per cent of their money.
Speaking about the marathon negotiations in Brussels that resulted in the deal, Cyprus' president Nicos Anastasiades said "the hours were difficult, at some moments dramatic. Cyprus found itself a breath away from economic collapse".
The agreement, he said, “is painful, but under the circumstances the best we could have ensured. The danger of Cyprus' bankruptcy is definitively overcome and the tragic consequences for the economy and society are averted”.
Bullocks, Bullshit, and all that other good stuff! As I stated in Mainstream Media Says Cyprus Salvaged By EU Deal, I Say Cyprus Is Sacrificed By Said Deal - Thrown Into Depression, locking up a country's liquidity for an unspecified amount of time, then removing up to 40% of a nations small/medium/large business liquidity (permanently, they're catching haircuts) as well as that of your wealthy depositors, is tantamount to economic genocide! How in the hell do you calculate "The danger of Cyprus' bankruptcy is definitively overcome and the tragic consequences for the economy and society are averted”?
If anything, "The danger of Cyprus' bankruptcy... and the tragic consequences for the economy and society" are just getting started! I find it amazing that the Troika has convinced so many small nations that boiling slowly in a pot of austerity flavored depression is preferable to a quick and clean exit and rebirth. Is belonging to the EU really worth undergoing an extended depression? Iceland gave the finger to the Troika and they're doing better than nearly everybody in the EU! Think about it.
From the BBC: Iceland's 'tenacity' lifts economy out of crisis
Whisper it - Iceland's economy is on its way back. The frozen island on the edge of the Arctic, which had 10 straight quarters of shrinking GDP, is suddenly on a steady run of seven quarters of growth averaging at 2.5% per annum - something that few European countries can boast. Unemployment has fallen to just below 5% and confidence is returning...
Ready! Set! Bank Run!!!
Cyprus contagion raw
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