Guest Post: The Real Cyprus Template (The One You're Not Supposed To Notice)

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Real Cyprus Template reveals the core-periphery Neocolonial-Financialization Model in all its predatory glory.

Much has been said about "the Cyprus Template" (the so-called bail-in, where deposits are expropriated to recapitalize the insolvent banks), but virtually nothing has been written about the Real Cyprus Template.

Longtime correspondent David P. (proprietor of Market Daily Briefing) charted some very interesting data that enables us to follow the money--specifically, Eurozone money in the "foreign deposit sources" (deposits in Cyprus banks that originated from outside Cyprus).

It appears the key preliminary step of the Real Cyprus Template is that money-center banks in Germany and other "core" Eurozone nations pull their money out of the soon-to-implode "periphery" nation's banks before the banking crisis is announced.

As David observed, "I think this explains a lot about something that has always puzzled me: why the delay in resolving Cyprus after the Greek haircut?"

Here is David's explanation and two key charts:

"The Cyprus situation had been simmering for at least a year when in March of 2013 it finally broke; Cyprus had a week to take care of its banking situation or else face a cutoff of access to the eurosystem by the ECB. This brought matters to a head; the Cyprus Bail-In was finally settled upon, where uninsured depositors in the two largest banks in Cyprus took major haircuts, and must wait for return of their money until the assets of the banks are run down.

The banking problems in Cyprus had their roots in the Greek Sovereign Default, and were known by the general public for about a year prior to the recent default; a New York Times article dated April 11, 2012 lays out the particulars.

Looking at Cyprus bank security assets in data provided by the ECB, the problems were visible earlier - right after the first Greek haircut in mid 2011, and a second haircut finalized in early 2012. This was a 11 billion euro hole in a system with 100 billion in assets total, centered upon two banks that held half the deposits in the system.

Greek Crisis Timeline

Date Event
April 2010 Greek Sovereign Bonds Declared Junk
May 2010 110 Euro bailout, no haircut
July 2011 "Private Sector Involvement" decided at EU Summit
Oct 2011 130 Euro bailout, 53% face value haircut
Mar 2012 Haircuts take effect; actual haircut 85%

You can see the effects of the increasing haircuts in the chart below. The chart lists all types of bonds owned by all the banks on Cyprus. The red line is the important one. It shows "all off-island Eurozone Government Bonds."

Put more simply, that red line represents Greek Government debt owned by the two banks on Cyprus that failed. It went from a 12 billion euro value in mid 2011, down to a 1 billion euro value in early 2012. That's an 11 billion haircut - all due to the Greek Default.

So why did the eurozone wait so long to resolve the problematic Cypriot banks with their 11 billion euro hole that was clearly serious in the middle of 2011, and becoming blindingly obvious by 2012? Therein lies a story - it has to do with banking, and how banks make money. The explanation is a bit complicated, but bear with me.

Bank deposits are grouped into 3 primary categories: deposits from households, from corporations, and from other banks. Households and corporations typically have a long standing relationship with their bank; they only move their deposits slowly, and most of this sort of depositor uses time deposits to maximize their interest income. Deposits from other banks are what we might term "hot money." They arrive quickly, and depart just as fast. But why would a bank deposit money with another bank? The simple explanation is: interest rate spreads.

Let's imagine you ran a German bank, and you paid very low rates to your overnight depositors. You have a great deal of really cheap money on your hands. What are your options to make money? You can either loan money to German homeowners one by one, but there are only so many German homeowners, and they only want to borrow so much money. So after loaning all you can loan, you search the world to try and find another bank that is advertising high rates for deposit money, and you stumble on the banks in Cyprus.

Rate Deposit Type & Location
0.55% German Overnight Deposit
1.1% Cyprus Overnight Deposit
2.8% Cyprus Savings Deposit (1 year)
4.9% Cyprus Time Deposit (1 year)

Now then, if the Bank of Cyprus doesn't go under, this is free money. How much are we talking about? Subtract the rate for the overnight deposit in Germany from the time deposit on Cyprus (4.9 - 0.55) then multiply by 60 billion euros. That ends up being 2.61 billion euros in profit. Per year! Cost? One guy at a computer hitting the "transfer" button on his keyboard in Dusseldorf!

This sure beats trying to loan money to a bunch of German homeowners one by one! But the key to this free money is, your bank must be able to get its money out of Cyprus prior to any trouble.

And the barrier to getting the bank's money back is those Time Deposits (the deposits paying the most interest) are stuck in Cyprus for a year. So in order to avoid loss, you have to see into the future one year and stop rolling your bank's time deposits one year before those Cyprus banks go under. Otherwise you will have collected that 4.9%, then suffered a 30-60% uninsured depositor haircut. And a haircut is not a good way to ensure your banker bonus for the year.

So with this hypothetical strategy in mind and being mindful of the dangers of default and the timeline of when things occurred, take a look at the following chart of "foreign deposit sources" (deposits in Cyprus banks that originated from outside Cyprus) and see for yourself how well each foreign participant did in anticipating the eventual banking system crisis.


  • Black: Eurozone [German & French] Banks
  • Red: Cyprus people and businesses
  • Blue: Cyprus Banks
  • Green: Banks outside the Eurozone
  • Orange: Russian "Mobsters" & Brits

Looking at the timeline, even as late as the end of 2011, when it was clear Greece would default and the banking regulator had to know the banks in Cyprus were doomed, the amount of Eurozone-bank derived deposits in Cyprus was over 20 billion euros, a good portion of which would be subject to massive losses if the Cyprus Template were to be applied at that moment.

[Note that 20 billion euros was - at that time - the same size as the "Russian Mobster" Money.]

But at that moment, as a result of the "collecting the spread" strategy, some big chunk of that money were likely in time deposits, unable to be withdrawn. That money couldn't flee, not just yet.

But as time passed, those Eurozone bank deposits were slowly reduced down to 10 billion euros, a reduction of 50%. Presumably, as the time deposits expired, the money was brought back to the fatherland.

And then suddenly the President of Cyprus was informed he had 1 week to solve the banking situation that had been pending for more than a year.

In looking at the movement of capital prior to the default, we can give a grade to each participant, as a result of their apparent ability to assess the the danger to their deposits.

The clear winner: Eurozone Banks. Those guys were geniuses. They were the only participant to seriously reduce holdings prior to the default.

Participant Grade
Eurozone [German & French] Banks B+/A-: almost perfect
Cyprus People & Businesses F: completely unaware
Cyprus Banks C-: slightly more aware
Banks Outside Eurozone F: completely unaware
Russian Mobsters F: completely unaware

So it is expected (and a bit sad) that households and businesses don't leave their banks readily, so its not surprising they stayed on board right up until the end.

What is fascinating to me is that the banks that were NOT in the eurozone clearly had no idea what was coming, and the banks actually ON Cyprus only had an inkling, and that only at the last minute. Given both the timing and the form of the Cyprus bank resolution was in the hands of the ECB, as well as French and German politicians, is this astounding ability of the Eurozone banks to avoid losses truly a surprise?

One question that might be asked is, if the Eurozone banks knew what was going to happen, why not withdraw all their money from the banks on Cyprus?

First, only half the banking deposits on Cyprus were involved in the bail-in. Perhaps the 10 billion euros in remaining Cyprus-EZ bank deposits are in other healthy Cyprus banks. Another explanation is that only a subset of the eurozone banks were well-connected enough to receive advance information.

One last point. Since now we understand how perfectly the well-connected eurozone banking establishment identifies issues in member nation's banks, and how adept it is at avoiding uninsured depositor haircuts, we might find it useful to watch deposit flows of these Eurozone banks going forward.

They might well provide us insight as to where the next set of banking issues might arise, and perhaps more importantly, what the timing of these issues."

Thank you, David, for sharing your finding with us. We can now see there are two Cyprus Templates:

1. The public-relations/propaganda model

2. The real one, that enables "core" eurozone banks to pull their deposits out of periphery banks before the deposit expropriation and capital controls kick in.

Why are we not surprised the entire charade and expropriation is rigged to benefit the core banks? For more on the core/periphery structure of the Eurozone, please read The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

To fully understand the Eurozone's financial-debt crisis, we must dig through the artifice, obfuscation and propaganda to the real dynamics of Europe's "new feudalism," the Neocolonial-Financialization Model.


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hedgeless_horseman's picture



The ratings agencies will let us know us when a nation's debt is no longer a safe investment.

Trust in Moody's, Warren Buffett does!

rehypothecator's picture

Just as soon as the SEC's gag order expires.

seek's picture

Which happens 84 months post-default.

Buck Johnson's picture

No kidding, also thanks for posting this that was the real reason to get THEIR money out of the banks and quickly.

walküre's picture

You know at first I thought that nobody in their right mind controlling large amounts of money would give any credence to rating agencies anymore. But then I remembered that banks and investment groups are filled with brain dead stupid technocrats who will defend their investment choices and use the rating agencies as their guidance (scapegoat).

No debt cuts for either the Greek or Cypriotic population. The elite wants to eat their cake and have it too. As always.

CrashisOptimistic's picture

Take a giant step backwards and consider what it means -- morally or otherwise.

An entity prints up money out of thin air.  They lend this money to another entity.  Then they demand that second entity who borrowed, at great austerity pain to themselves, pay it back.

Sandmann's picture

If I can air and sell it to you at a premium, it tends to be hard on you when I want the can back and all their air you can breathe.....that's banking

MiguelitoRaton's picture

1) Why couldn't they simply take the penalty and sell the CD early? Why wait a year?
2) Where are the core EU banks bailing out of now?

NotApplicable's picture

Why take a penalty when you could cause it to fall upon others?

MiguelitoRaton's picture

When the shit is hitting the fan, return OF principal is more important than return ON principal

ATM's picture

But when the Euro powers can determne the default date why bail out of a free money program early?

The Authoritarians held up those banks long enough for the German banks to rape and pillage and stick the bill on the poor Cypriot depositors.

Mesquite's picture

And 'they' didn't even wear masks...

Peter Pan's picture

If they all started en masse breaking their CD's, it would signal that something was afoot.

NotApplicable's picture

You're missing the point. NRSRO agencies ratings are used to mark quality of assets for REGULATORY REQUIREMENTS.

Which was why Egan Jones' recent non-NRSRO rating was such a hoot. Technically, it was worthless, yet in reality, it is priceless, as it's the only reality-based rating out there.

MeelionDollerBogus's picture

EAT YOUR CAKE and have your neighbor’s too. Fixed it for ya

resurger's picture

And good luck in declaring a "Credit Event"


Dewey Cheatum Howe's picture

Come on Italy or other renegades freeze transfers on central bank accounts and let the banks go under like cough *Monte dei Paschi* style banks with large derivative positions.

BTW good article exposing the hypocrisy of these central banks policy of eurozone equality but my money is more equal than yours and your sovereignty as a nation.

unwashedmass's picture


so, with this in mind, who is next? 

walküre's picture

Slovenia, Portugal are up next immediately.

Italy and Spain later this year

Down, down the drain they go. Eternal debt servitude until the people chop the heads of the elite.

smbc1066's picture

These countries woes have been simmering for a while now. What will be the impetus for implosion? Also, the spreads of most Eurozone countries, specifically the PIIGS, are not reflective of funding pressure or a dislocation.

Why is this?

Ghordius's picture

lol - fascinating theory, though I do have to object about putting "Russian Mobsters & Brits" in the same category

but I don't buy it - it needs two banks for such a deal, and accepting this kind of "hot money" is not what I would call "sensible banking" anyway - and the high rates offered by those Cypriot banks just reminded me of... Icesave

TJ00's picture

Well Brits and Russians did fight Nazi Germany together, so if this is WWIII then the sides look the same.

allocater's picture

Just be glad it wasn't "Russian & Brit Mobsters"

Hulk's picture

Truly Evil bastards, these banksters.

A cyprus couple had sold their home (they were moving back to England) and deposited the money in a Cyprus bank. Poof, gone. Banksters needs to be publicly hung for this shit...

hedgeless_horseman's picture



Poof, gone.

Not gone, but rather transferred to someone else's account, and probably now in an English bank. 

Remember, these folks are thieves, not arsonists.

Hulk's picture

Absolutely, stolen it was...

newworldorder's picture

Aree with you, but they could not have done it without complecity from the EU Central Bank, BIS and IMF. So much for EU solidarity. Draghi and his fellow thieves will steal all the periphary counties blind. Europeans (including Germans better wake up. Either they throw the banksters out or become debt serfs.

Carl Spackler's picture

According to the data depicted, the money fund flows out of Cyprus had been going on for many years, so there was ample time to get out, if one were to study the market and take control of their own investment decisions. 

The problem with the fictitious or real English couple in Cyprus is that they handed over the power over their own money to somebody else...

The real issue driving all of this behavior is government failure.  The bankers exposed to government failure then go into survival mode, which includes reminding the governments involved that they are a part of a fractitional reserve system and that the risk of the system collapsing is very real.

The governments then partner with these banks to protect their own economies from the systemic risk.

Cyprus got caught in the middle of the game, and the ECB's attempts (on behalf of the Euro elitist crowd) to deal with the systemic risk the EU governments and banking systems have created.

Always, protect thyself and don't rely on government or some other charlatan to protect yourself.







resurger's picture

Whetstone and Sword for me.

Cognitive Dissonance's picture

"So why did the eurozone wait so long to resolve the problematic Cypriot banks with their 11 billion euro hole that was clearly serious in the middle of 2011, and becoming blindingly obvious by 2012? Therein lies a story - it has to do with banking, and how banks make money. The explanation is a bit complicated, but bear with me."

There is always a long and complex explanation for corporate and state fraud. Always! And the underlying real reason is always simple. Always!

They don't want the truth to be known for as long as possible.


Ghordius's picture

the funny thing is the question: "why did the eurozone wait..." - the same innocent error that Ron Paul recently made, by assuming that there is (already) one banking system in the eurozone, with all banks regulated by the ECB

the gentlemen that was responsible for monitoring those Cypriot banks is called... Panicos

Cognitive Dissonance's picture

Some time ago I stopped giving state and corporate entities the benefit of the doubt. Meaning I stopped looking for a "reasonable" or even "innocent" explanation for their constant disasters and now just assume the worse.

<From that point on I have rarely been disappointed.>

bsdetector's picture

I am just amazed at how orderly the EZ is addressing each country. It is almost as if it was well planned. Why aren't we seeing calamity in multiple sovereigns at the same time? Fluke of the universe that one thing happens right after another, isn't it?

Timmay's picture

Logic would say we chart ALL Euro banks and look for a similar pattern, no?

Carl Spackler's picture

Or more precisely, we graphically show and analyze the data of money fund flow trends in each EU country.



DavidC's picture

What about the geniuses in Laiki and Bank of Cyprus? They must(?) have had the data and seen what was going on?


Urban Redneck's picture

The guys responsible for wholesale funding couldn't have missed suddenly being treated like a diseased whore when none of their EZ clients were interested in renewing the "relationship".  But C-suite guys can actually be pretty dim, especially if they got the job through a relative or some other form of patronage, as opposed to experience running a bank.

williambanzai7's picture

So there you have it, a complete explanation of what we instinctively knew to be the case all along. It is good to be the Queen's bankers. In this case the Troika Queen.

And this is why I have absolutely no second thoughts about the pictures of her, Schaeuble and Lagarde!

Mediocritas's picture

Maybe now Bruce Krasting will stop believing the propaganda that Cyprus was all about dodgy Russians.

q99x2's picture

Very good ZH post. Let the people know in the other countries before the time comes.

eddiebe's picture

There is something really gross about all these euphemisms that the banksters and journalists seem fond of using.

Words like bail- in, hair- cut, quantitative easing etc etc.. This practice distorts what is really going on and somehow seems to whitewash issues that are too important to just somehow disappear with slight-of-mouth.

What we are really dealing with is confiscation/felony robbery and moneyprinting pure and simple. The list as mentioned goes on and on. I urge all journalists not in the employ of banksters and their lackeys to use the terms that correctly apply. 

Sandmann's picture

When you strip away the veneer of our "civilisation" it comes down to the simple truth of screwing over the next guy to get ahead. These monkeys wear pretty clothes and put on cologne to smell nice but they are hyenas and jackals when you strip them down to the bare essentials.

Human beings can be infinitely disappointing; only the exceptional human being is marked out by having virtues that make him or her rise above the mundane

CrashisOptimistic's picture

The only reason you have said that and that it make sense is because of oil scarcity.

When oil's joules influx to the system was growing, the pie was growing.  You could get a bigger slice without taking it from the slice next to you.

No longer.

williambanzai7's picture

Financial sodomy is the proper term.

SubjectivObject's picture

Hmmm, a subtle obscuring:

Sodomy may be consentual, while rape is, by definition, not consentual.  Trust should not imply consent outside the norm, and theft is clearly outside the norm.

This is Financial Rape.

Stud Duck's picture

Financial sodomy, nice one there, William!

Back in 69 we would of referred to it as FUBAR,  or "we got nips in the wire" situation. No matter on the terms, looks like the only way now for the Cypriots are screwed, The only way they can throw this off of there children and grandchildren is to gillotine the politicians and bankers, default, and ask the Turks and Russians or help.

By the way, are these politicians/bankers Greek or Turks. I know the Turk population is a 40% minority on that island, just wondering if the Turks have a fog in this fight/

IamtheREALmario's picture

Yes, and my personal favorite, which is the propagandist use of the word "elite" as someone who is a successful financial parasite.

IamtheREALmario's picture

Kool ... so just like Bear-Sterns and Lehman, Cyprus was a takedown not a natural crisis. My belief is that we are now on the runway for the next manipulated banking crisis currently scheduled for September of 2015. What they do between now and then should give us some indication of how it is going to manifest itself. Cyprus may have been the first trial balloon on the path to global bank closings and depost confiscation by the criminal elitist bankers.

They think that all money is theirs and you only use it with their approval. Fiat should not be considered a store of wealth... unfortunately I am not sure precious metals will be much better in a world where they have little practical use and are considered illegal currency.

MeelionDollerBogus's picture

It's a matter of perspective: if legal currencies all require a massive drop in purchasing power or a massive amount of confiscation or capital controls at the outset of receiving wages or revenues then there’s no incentive to stick with them – gold it shall be. Silver for personal exchanges, gold for business, all forced underground. No one will be able to tolerate a system where half or more of wages / revenues are confiscated at-source, where actual “money owned” is restricted by capital controls, where everything is taxed 3 times in a row. No economy can withstand it. The path of least resistance is underground money systems & barter. And while bitcoin ultimately will fail so long as fiat-exchange centers are its primary use, it may still see wider use when the fiat under other conditions is heavily stolen from, for those too dependent on the grid & too uneducated to understand gold, silver, barter & truly off-grid benefits of being untrackable.