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Iceland, Cyprus... And These Two Countries?

Tyler Durden's picture




 

Overnight, Reuters published an article highlighting something we noted first over three years ago: the unreasonably large size of a local financial sector as represented by its total assets compared to the host nation's GDP.

Specifically, Reuters alleges that "Cyprus' troubles stem from its exposure to Greece and the huge losses its two largest banks, Bank of Cyprus and Marfin Popular, had to stomach when euro zone leaders agreed in late 2011 to write down the value of private-sector holdings of Greek government bonds. In total, Cyprus requires 17 billion euros, nearly equivalent to its economy's annual output, to rescue its banks and deal with the government's own bills. Relatively small in the context of the Greek and Irish EU-IMF bailouts, at 240 billion euros and 67.5 billion euros apiece, for an island of just 1 million people it is a huge burden and speaks volumes about how large and unwieldy its banking sector had become."

More importantly, Reuters points out the similarities between Cyprus and Iceland in one key metric: total financial assets to the underlying GDP: "The [Cyprus] banking sector is now roughly eight times the size of the economy compared to 10 times for Iceland and over four times for Ireland before their crises. Banks in both countries used cheap funding to gorge on speculative investments." The issue for Cyprus of course was the composition of the liabilities matching these assets, which were mostly in deposit form, which was the alleged reason why the Eurogroup decided to proceed with deposit haircuts in order to shrink the overall financial balance sheet: arguably there were no other liabilities it could haircut. And yes, Cyprus is very comparable to Iceland in that regard. That much is known.

What may not be known is that it is specifically the fact that the underlying economy was tiny by comparison, i.e., small, relatively inert, non-aggressive government, in both Iceland and Cyprus that made them a depositor's safe haven... until of course confiscation day.

What is certainly not known, at least for now, is that slowly but surely financial markets and more importantly depositors, will start looking at all countries that have a very high ratio of financial assets, and thus deposits, to host GDP, as an indicator of where the "Cyprus Virus" may strike next.

Which is why we present readers with a pop quiz: the chart below show the ratio of total financial assets to host nation GDP. The tragic cases of Cyprus and Iceland are well-known, as per Reuters, and highlighted on the chart. We urge readers to guess what the supposedly very stable countries X and Y are on the chart, whose total financial system assets to GDP are approaching those of Cyprus, especially since depositors in their banking systems may be due for a very unpleasant surprise next if indeed Iceland and now Cyprus are the case studies.

Hint: Russian billionaire oligarchs are quite familiar with both X and Y.

We will provide the answer shortly after Bernanke's press conference today in which he will once again reaffirm he will monetize US debt as long as the US runs a $1+ trillion budget deficit, i.e., forever.

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Wed, 03/20/2013 - 10:21 | 3352046 Dan The Man
Dan The Man's picture

They should be talking

Wed, 03/20/2013 - 10:22 | 3352054 aint no fortuna...
aint no fortunate son's picture

Larry Motherfucking Fink is buying all 4 of them

Wed, 03/20/2013 - 10:30 | 3352082 BurningFuld
BurningFuld's picture

Oh I get it now...the more money you have in the Bank the more likely you are to go Bankrupt. Ah...simple mathematics.

Wed, 03/20/2013 - 10:33 | 3352091 Fukushima Sam
Fukushima Sam's picture

Man's doomed struggle against entropy would be laughable if I wasn't caught up in the middle of it.

Wed, 03/20/2013 - 10:38 | 3352110 Stud Duck
Stud Duck's picture

Ahhhhhhhhhhhhhhhh, a Korgypsian! Off with his head!

Wed, 03/20/2013 - 11:24 | 3352273 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

well, one must be the US, since Tyler is withholding releasing the answer to after Bernanke's presentation presumably in order to knock Bernanke's hypocrisy...  as to the other, I'll guess it is the the US' little buddy, Canada....

Wed, 03/20/2013 - 11:29 | 3352287 SafelyGraze
SafelyGraze's picture

to avoid haircuts, we must inflate the value of the assets.

call it "mark-to-liabilities"

 

Wed, 03/20/2013 - 16:21 | 3353841 Catflappo
Catflappo's picture

Essentially we need to grow more hair, so when the haircut is applied it comes out to 'the same' as before the hair started growing

Paul Krugman having a beard is therefore somewhat appropriate?

Wed, 03/20/2013 - 16:34 | 3353895 akak
akak's picture

That is not a beard on Krugman, it is actually just all the pubic hairs that have accumulated on his face after his repeated teabaggings of Bernanke.

Wed, 03/20/2013 - 11:30 | 3352292 whotookmyalias
whotookmyalias's picture

Cyprus banks, in fact any bank, has no business holding international debt and derivatives on their balance sheets. None.  BWTFDIK.

Wed, 03/20/2013 - 11:33 | 3352307 toys for tits
toys for tits's picture

It looks like Cyprus is fixing that.

Wed, 03/20/2013 - 11:32 | 3352305 Oquities
Oquities's picture

England and USA

Wed, 03/20/2013 - 12:18 | 3352482 DoChenRollingBearing
DoChenRollingBearing's picture

UK and Switzerland would be my guess.

Wed, 03/20/2013 - 12:26 | 3352528 Doomer
Doomer's picture

Ditto that (UK and US).

Cyprus, Ireland, Iceland, Greece (kind of), and the UK ... can anyone guess what they have in common?

Hint: A high sand to land ratio.

Wed, 03/20/2013 - 12:35 | 3352577 Catch-22
Catch-22's picture

Yemen

Ximbabwe

...that was easy...

Wed, 03/20/2013 - 13:19 | 3352837 Catch-22
Catch-22's picture

Whoever junked me… when the banks reopens on Tuesday; pull out $100 and by yourself a sense of humor…

 

Wed, 03/20/2013 - 13:38 | 3352908 Fish Gone Bad
Fish Gone Bad's picture

You are a scream!  As you may or may not know, 30% of the population does not have a sense of humor.  These people find their way into bureaucratic jobs and spend most of their free time shopping for laxatives and alcohol.

Wed, 03/20/2013 - 14:36 | 3353269 Catch-22
Catch-22's picture

Since biz news has become almost irrelevant, I find myself wandering the streets of ZH for puddles of humor… some of the guys (gals) here are great! I guess the prodigious almighty Tyler leads the bunch with his own brand of dark and sarcastically sanguine style…

…the irony that “doomers” are the funniest people…

 

Wed, 03/20/2013 - 14:20 | 3353169 Rogue Trooper
Rogue Trooper's picture

The Krug was on the board again.. he got a real spanking yesterday.  He's pissed we all just don't get it and kneel to his superior 'intellect'.... 

Wed, 03/20/2013 - 11:41 | 3352334 French Frog
French Frog's picture

"Hint: Russian billionaire oligarchs are quite familiar with both X and Y"

With that in mind, I'll say the UK is one of them and the second one is from these 3: France, Italy or Spain

Wed, 03/20/2013 - 12:34 | 3352517 thisandthat
thisandthat's picture

I'll go with UK and SPain.

Oh, wait it says very stable - hmm...

Wed, 03/20/2013 - 13:01 | 3352742 Belarusian Bull
Belarusian Bull's picture

It's Switzerland and UK. 

Wed, 03/20/2013 - 13:38 | 3352842 Pseudo Anonym
Pseudo Anonym's picture

nah.  cayman, bahamas, bermuda in that order; bermuda is a bonus for next time

Fri, 03/22/2013 - 09:28 | 3361595 phalfa5
phalfa5's picture

Turdizstan and Deadpan

Wed, 03/20/2013 - 16:28 | 3353806 MisterMousePotato
MisterMousePotato's picture

@FukiSam ... Hm. 55 ups and no downs. I didn't down you because I understand the point you are trying to make, but I disagree. Your attitude is unnecessarily nihilistic.

There is a rose bush growing on a wall of a monastary in France that is thought to be 1000 years old. The rose is still there as is the monastary.

Sure, it may be a nuisance, but the fact is that one can remove all the weeds (every. single. one.) from one's row of carrots, if one is determined to do so. Yeah, you may have to do it all over again in another month or two, and certainly again next year, but ...

it. can. be. done.

Entropy is simply a natural force that can, in most necessary and reasonable circumstances, be overcome.

It is said that water is an architect's worse enemy.

And yet, here I sit. Dry and warm under a roof that is over one hundred and ten years old. (And by the looks of it, it might last as long as that rose on the monastary in France.)

Wed, 03/20/2013 - 12:42 | 3352631 matrix2012
matrix2012's picture

All the poor savers should have been investing in stawks instead, in particular the Wall Street related ones, they are proven to be much safer and give much higher returns... look at how the DJIA index just has upward direction!!

The interest seekers are damned to be doomed.

 

/s

Wed, 03/20/2013 - 10:55 | 3352175 OptionNinjaNYC
OptionNinjaNYC's picture

You know what I've noticed? Nobody panics when things go "According To Plan." Even if the plan is horrifying! If, tomorrow, I tell the press that, like, a gang banger will get shot, or a truckload of soldiers will be blown up, nobody panics, because it's all "part of the plan". But when I say that one little old mayor will die, well then everyone loses their minds! Introduce a little anarchy. Upset the established order, and everything becomes chaos. I'm an agent of chaos. Oh, and you know the thing about chaos? It's fair!

--- The Joker

 

http://wallstreetfool.com/2013/03/20/the-russians-are-coming-comrades-ti...

Wed, 03/20/2013 - 11:31 | 3352293 Big Slick
Big Slick's picture

Now we're talking.

Wed, 03/20/2013 - 12:11 | 3352462 IamtheREALmario
IamtheREALmario's picture

Kind of begs the question as to why the Russians don't invest in their own country and instead trust the money to untrustworthy banks that will just piss away the money on the next thing that Thomas Stolper recommends.

Wed, 03/20/2013 - 14:06 | 3353111 Pure Evil
Pure Evil's picture

The Russians are run by the mafia (KGB) and they have no more interest in their country's welfare than the nahbobs running the US.

Wed, 03/20/2013 - 11:29 | 3352289 JOYFUL
JOYFUL's picture

As long as we're doing quizzes n all(whilst waiting for the next shoe to drop o'er East!)....

there's a couple of 'regular contributors\street solicitors' here on the Hedge today whose attempts to capitalize on the Cyrus imbrogolio are pretty pathetically transparent...and sure indication of just how much their reach exceeds their grasp of the relevant topics of interest to the readership.

Their histrionic choice of headline(s) tells it all...and displays a very suspect 'best before' date for both individuals.

Clerk to aisle 9!  Bring the mop n pail!

 

Wed, 03/20/2013 - 11:45 | 3352355 OptionNinjaNYC
OptionNinjaNYC's picture

Your condescending opinions are greatly appreciated. I'm sure you're smarter than me and just about everybody here on ZeroHedge. I'm a Trader and YES, capitalizing on opportunities is ingrained in my DNA. So, I'm sorry if I offended you in any way, shape, or form, but from your response, you clearly look like a Follower and not a Leader. So Keep Following, because if it weren't for muppets like you, the Goldmans' and Stanleys' of the world would've been bankrupt long ago.

P.S: I've been a loyal ZeroHedger longer than your underdeveloped mind can fathom.

Wed, 03/20/2013 - 12:04 | 3352435 Bananamerican
Bananamerican's picture

"Don't follow leaders..."

Wed, 03/20/2013 - 13:20 | 3352848 JOYFUL
JOYFUL's picture

You flatter me sir.

I can fathom that you've been around here for quite some time, but dust builds up in corners and what of it?

I have no idea what you're on about, as I have not directed any barb your way, and having read your rather lame diatribe against an imagined provocation, very much doubt I would take the time to bother doing so, no matter the circumstance. Please lead yourself to a quiet corner and try to calm yourself down.

Wed, 03/20/2013 - 13:53 | 3353036 OptionNinjaNYC
OptionNinjaNYC's picture

Well, the final words I waste on you are as follows:

At least I'm trying to contribute something in my own small way; I get it if you don't like my style or method. But thats the beauty of Free Will. No ones asking you to click on the links me or any other ZeroHedgers post, let alone spend your brain cells (whatever's left of them) on composing sophisticated and well researched (on Dictionary.com) Shakespearian responses, while in the process exposing your own insecurities to the world to laugh at.

"It has been said that something as small as the flutter of a butterfly's wing can ultimately cause a typhoon halfway around the world."

--- Butterfly Effect, Chaos Theory. 

PEACE OUT !!!

Wed, 03/20/2013 - 14:13 | 3353141 JOYFUL
JOYFUL's picture

Maybe it's been a bad day on the 'trading floor'? I have no idea what's bit you, or why you imagined I had any interest in 'your posts'  let alone urge to comment upon one, but in all sincerity I urge you to stop embarrassing yourself further here...whoever you are. Perhaps a hobby would help?

Wed, 03/20/2013 - 14:59 | 3353408 OptionNinjaNYC
OptionNinjaNYC's picture

Well, at least some of us do actually TRADE; unlike divorced college professors moonlighting as Traders. You remind me of John Nash from A Beautiful Mind; you've probably created an imaginary life for yourself in which you pretend to be a Trader, trading Monopoly Money. Good for you.

People with self-esteem issues who are an embarassment themselves, tend to perceive others in the same vein.

My new hobby is butchering Muppets. Anyone interested in signing up? First 14 days are FREE.

 

Wed, 03/20/2013 - 14:20 | 3353173 Tsukato
Tsukato's picture

You're kinduv an embarrassment. Good luck with that.

Wed, 03/20/2013 - 14:47 | 3353350 OptionNinjaNYC
OptionNinjaNYC's picture

That coming from an ass clown named Tsukato? You seem like the kind of guy who'd suck a bag of dicks for a dollar. How much does a bowl of rice cost in Japan, given the current exchange rate of USD/JPY at 95.50.

Wed, 03/20/2013 - 11:34 | 3352310 LongBallsShortBrains
LongBallsShortBrains's picture

If it isn't Switzerland and the UK, it must be Enron and, mf global?

Mexico and Guatemala?

California and Illinois?

Heckle and Jekyll?

The fed and the ecb?

Snoopy and Woodstock?

Bourbon and coke?

Wed, 03/20/2013 - 12:43 | 3352411 Fred Garvin
Fred Garvin's picture

Cyprus situation explained by Quentin Tarentino and Guy Ritchie

http://www.youtube.com/watch?v=neQ-VyQAa9s&feature=youtu.be

Wed, 03/20/2013 - 10:21 | 3352048 Shizzmoney
Shizzmoney's picture

"What are the US and UK?"

I'll take, "Failures in Central Banking" for $800, Alex.

Wed, 03/20/2013 - 10:24 | 3352065 Stackers
Stackers's picture

UK and Switzerland. US banking system while large is offset by an equally large GDP.

Wed, 03/20/2013 - 10:42 | 3352085 hedgeless_horseman
hedgeless_horseman's picture

 

 

Russian billionaires tend to avoid the USA and UK for fear of being recognized from their days working for the KGB.  What is the statute of limitations for espionage?

Spain?

Spanish police arrested four people Friday suspected of laundering large sums of money from Russian criminal gangs as part of a network they said may be linked to Semion Mogilevich, one of the FBI's ten most wanted fugitives.

 

http://www.expatica.com/es/news/spanish-news/spanish-police-break-russian-mafia-money-laundering-ring_256777.html

Germany?

There is nothing complicated about the charges against the defendants. According to the indictment, Alexander A. opened several accounts with Berliner Bank and a branch of Commerzbank in the southern Germany city of Esslingen, as part of a plan to invest Mafia millions in Germany, and established a Germany company, S+L Iba GmbH, to manage the funds. Alexander L., 59, a former Russian investigating magistrate, was made managing director of the company. An old friend from Moscow, Oleg R., 47, was given the job of handling transactions.

 

http://www.spiegel.de/international/world/money-laundering-germany-puts-suspected-russian-mafia-boss-on-trial-a-499854.html

Wed, 03/20/2013 - 10:49 | 3352156 Crazed Weevil
Crazed Weevil's picture

We wouldn't do anything to them no. In the UK we might poison the odd one, but mostly we let them buy football teams...

Wed, 03/20/2013 - 11:01 | 3352176 JeffB
JeffB's picture

I doubt it's Spain given one of the hints in the article:

"what the supposedly very stable countries X and Y"

Maybe substitute Switzerland for Spain?

Wed, 03/20/2013 - 10:33 | 3352092 BurningFuld
BurningFuld's picture

"US banking system while large is offset by an equally large GDP."  You are correct. And a large portion of the GDP is generated by.....Banking!!!!  It's like a perpetual motion machine...only it spits out money!!!  Nirvana has been realized.

Wed, 03/20/2013 - 10:42 | 3352133 pods
pods's picture

The US has green shoots and Unicorns.

Skittles too.

pods

Wed, 03/20/2013 - 10:46 | 3352142 kito
kito's picture

Skittles are banned....high fructose corn syrup....

Do NOT follow this link or you will be banned from the site!