Why a Single Bail-In For a Country Few Can Find On a Globe Matters to EVERYONE

Phoenix Capital Research's picture


The Cyprus bank bail-in committed of early 2013 may seem like small deal to most US investors.


After all, most Americans probably couldn’t even find Cyprus on a globe. And with the mainstream media spreading the narrative that the Cyprus bail-in was a one-time event that was meant to support the bank while punishing tax dodging crooks, 99% of folks won’t think twice about the situation.


However, the reality of what happened in Cyprus is a far different matter. And the reason that this reality has not been featured as headline news is because doing so would reveal the following:


1)   European politicians are both corrupt and incompetent.

2)   Those meant to assess the risk of any financial institutions don’t know what they’re talking about.

3)   The average citizen will be screwed while politically connected insiders will be given the means to circumvent the law.


Let’s assess these issues one by one.


First off, the Cyprus bank “bail-in” was not some sudden event. The country first asked for a bail-out in JUNE 2012. Here’s the timeline.


·      June 25, 2012: Cyprus formally requests a bailout from the EU.

·      November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).


During the period of late June 2012 until November 2012, Cyprus’s problems were allegedly being assessed and nothing more. Throughout this period, NO ONE in a position of significant political or financial power suggested to Cypriots or anyone else who had money in the Cyprus banks that their money would be STOLEN.


Instead, numerous bureaucrats came out to assure the public that this situation was under control and that the risks to the Cyprus banks would be carefully assessed.


Then, in the span of a single week, a bank holiday was declared, bank accounts were frozen, and deposits were stolen.


Here’s the specific sequence of events:


·      March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.

·      March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.

·      March 18 2013: Bank holiday extended until March 21 2013.

·      March 19 2013: Cyprus parliament rejects bail-in bill.

·      March 20 2013: Bank holiday extended until March 26 2013.

·      March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.

·      March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).


The most critical item to note about this timeline is that while the general public was assured that all was well, politically connected insiders were warned to get their money OUT OF THE BANKS


One hundred and thirty-two companies reportedly had inside knowledge of Cyprus’ impending levy tax as they withdrew deposits worth US$916 million in the run-up to the bailout deal.


The companies withdrew their savings in the two week period (between March 1 to March 15) leading up to the rescue deal that enforced heavy losses on wealthy depositors in Cypriot banks, according to Greek newspaper Proto Thema.


Shortly after this the EU ministers and the IMF hammered out a 10-billion-euro (US$13 billion) bailout agreement with Cyprus, which included a one-time tax on deposits held in Cypriot banks.


In the meantime all banks in Cyprus temporarily froze the amounts required to pay the tax on their clients’ deposits and stopped all transactions while the government negotiated the details of the agreement.


The companies on the list withdrew their deposits in euro, USD, GBP and Russian rubles and later transferred to banks outside of Cyprus. The total amount withdrawn comes to US$916 million.




So, nearly $1 billion worth of insider money escaped the Cyprus confiscation scheme. NONE of it was retiree savings. Ordinary individuals got screwed while politically connected insiders were able to get out scot-free.


Now what’s truly amazing is that the Cyprus bank that collapsed was actually AWARDED BEST BANK for Private Banking by EUROMONEY Magazine. What was hailed as the BEST bank for private banking ended up being totally insolvent with 47% of deposits above €100,000 being converted into bank equity.


Bank of Cyprus has been named as the Best Bank for Private Banking in Cyprus, by the internationally acclaimed magazine EUROMONEY


Bank of Cyprus Private Banking ranked first among Cypriot, Greek and other international financial institutions operating in Cyprus in the Private Banking sector. This accolade classifies the Bank among the leading financial institutions offering Private Banking services and is yet another important international distinction for the Bank of Cyprus Group…


This recognition by EUROMONEY is ever more important in today’s macroeconomic environment as it reaffirms the Bank’s ability to safely and successfully respond to its clients’ financial needs and emphasizes its clients’ loyalty and trust.




Now, the political and financial elite in Cyprus and the EU will argue that bank deposits were not STOLEN because they were converted into equity in the bank at a rate of €1 per share. But being forced to change cold hard cash for equity in an insolvent bank is hardly cause for excitement.


Indeed, the market, now well aware that the Bank of Cyprus is insolvent, has been dumping shares. So those depositors whose deposits were converted into equity are watching their savings evaporate as shares dive.


Moreover, it’s not as though they were given the means to get their other deposits out of the bank:


Last year, thousands of customers with money in Bank of Cyprus, including many British and Russians, became unwilling shareholders in the lender when their deposits were turned into equity as part of a controversial €10bn emergency rescue.


Depositors saw 47.5 per cent of their money above a €100,000 threshold turned into equity.


More than a third of their cash was then locked into six, nine and 12-month accounts. Shares in Bank of Cyprus have been suspended on the Athens and Nicosia stock exchanges since early 2013 and only one of the fixed term cash accounts has released all of the money due to customers.


Éxito’s Ben Rosenberger and Michele Del Bo, who have previously arranged the sale of Lehman Brothers and Icelandic bank distressed debt, said that sellers had so far been mostly international clients who wanted to extract their money from the island by selling their deposits and shares to distressed debt funds.




Now the bank wants to raise capital, which would dilute the equity holdings for former depositors. What were savings are now not only subject to the whims of the market, but can be actively diluted by capital raises.


Again, we refer to the list we began this article with:


1)   European politicians are both corrupt and incompetent.

2)   Those meant to assess the risk of any financial institutions don’t know what they’re talking about.

3)   The average citizen will be screwed while politically connected insiders will be given the means to circumvent the law.


Cyprus matters because while countries may differ in specific cultural components, the monetary system in place is by and large the same around the world. And what happened in Cyprus should be seen as a template for what can happen elsewhere.


This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.


This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.


Best Regards


Phoenix Capital Research






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Longarm's picture

Get ready, the bank holiday is coming.....And it will be Russia's fault

Global Observer's picture

What happened in Cyprus is the inevitable scenario when any large bank fails. Any deposits in excess of the insured amount are always at risk whatever the country and whatever the bank. If the banks were not bailed in, they would have collapsed and the entire amount in excess of the insured limit would have been lost instead of only a part in a bail-in scenario. Moreover the deposit insurer, in the case of Cyprus it is the government of Cyprus, would become liable for the entire insured amount of all the depositors in the event of a bank failure and the insurer may not have the resources to cover the liability and may itself fail and leaving even the insured depositors with nothing.

Not sure what all this noise about the bail-ins is. Those who trust people/entities that should not be trusted, richly deserve the consequences. Perhaps they will learn from that experience.

AdvancingTime's picture

A bad haircut, in this case means you have been robbed. That may be the case if the government reaches in over a long weekend and steals money from your bank account.

This is a horrible precedent to set, and the worst part may be how some people are letting it slip out that it would be fair, or in some way justifiable if it is only on the larger accounts. It is fine if it only impacts the savings of someone else, the savings of what they see as "the wealthy", the problem is someday they may come for you. I shudder to think what kind of world our children will live in. More in the article below.


Global Observer's picture

It is not about who is losing the money, the wealthy or the not-so-wealthy. Banks are not mere depository institutions, they also lend. When the parties to whom the banks lend cannot repay, someone has to take the hit. There is no getting away from it. Don't want to be exposed to the risks banks take? Easy, don't keep your money in the bank.

Ban KKiller's picture

Banks are continuing criminal enterprises...what does it take to see that? Theft? Who still has money in those banks? I mean really. Anyone?

Joebloinvestor's picture

They had plenty of warning.

kenny500c's picture

Sorry, I don't think taxpayers should be bailing out depositers who have more than the FDIC insurance limit in their account if the bank fails.

Racer's picture

Note they were trying to take money under the €100K 'guaranteed' limit. So it is until it isn't

RaceToTheBottom's picture

You missed a window of time from November 2012 to March 2013.  

Apparently that timeframe did not happen or you lost some of your text or your analysis is faulty.  

This is important stuff!  Don't mess it up!

The Most Interesting Frog in the World's picture

Overspending utopian seeking governments and the sheep that voted them in deserve a bail in.  The "wealth" in many developed nations is nothing more than an illusion.  When you say wealth, you are referring to the private sector only and is only referring to the asset side of the ledger.  The public sector has spent well beyond it's means to create this wealth illusion and holds the liability side of the equation.

There MUST be bail ins, age and wealth based taxes, and estate taxes to claw back what are in reality ill-gotten gains!!!  Future generations should not be burdened with a problem they did not create!

JRobby's picture

Anyone that withdrew large balances prior to March 16, 2013 beheaded, heads piked.


SWCroaker's picture

Banks stole money.   Some customers fled early, some not.   And you want to behead some of the customers?   

Who is the bad guy, again?

Monty Burns's picture

Who are the bad guys?  Two categories. First those who got us into the mess by way of criminal banking activities. Second those who conspired to ensure that cronies escaped with their ooot thus adding to the cost imposed on the less well-connected.

UselessEater's picture

Queens of Hearts for both categories, I say dear Monty.

VWAndy's picture

Step 1 tank the markets.

Step 2 raid the deposits.

Step 3 martial law take the guns and gold and silver and all preper stores.

Just saying pillage then burn.

Billy Sol Estes's picture

Is it illegal to yell "RUN!" in a bank?

What about chanting?

DerAdler's picture

You better sleep all day
And run all night.
Keep your dirty Euros
Deep inside.
And if you're taking your deposits
Out tonight
You'd better park the car
Well out of sight.
Cause if they catch you in the bank vault
Trying to pick her locks,
They're gonna send you back to Cypress
In a cardboard box.
You better run.

zerocash's picture

Don't let Yellen run a bank!

Zero Govt's picture

don't yell or chant until after you've been to the till and removed your money ok

VWAndy's picture

Oh they will do it here. Its a good way to kick off martial law?

Solar's picture

Thinking they will transfer our money/retirement into myRAs for our own good.  We will get out what they think we need, which won't be much because how much do proletariots really need?  They will keep the rest for "safe keeping' and for the common good.  Makes me feel soooo secure about the future.

lasvegaspersona's picture

If the US did this it's status as the reserve currecny would be severely damaged. I just do not think the USA can get away with bail-ins. Inflation is the way the USA will go. The ECB is trying to protect it's currency. The Fed is abandoning it's.

FeralSerf's picture

The US has ALREADY DONE THAT when it forced negative real interest rates down the throats of the ordinary citizen depositors.

Negative real interest rates are the same thing as a "bail-in".

The Most Interesting Frog in the World's picture

The taper is on and I don't see how shoring up the banking system and government solvency will weaken the currency. If anything, the currency would become stronger, correct?

Postal's picture

If the US did this it's status as the reserve currecny would be severely damaged.

As opposed to the great international reviews we're getting now?

VWAndy's picture

Luck had nothing to do with any of it.

slightlyskeptical's picture

Bank of Cyprus is selling for .20 euro. So they have lost 80% of the 40% that was converted, for a total loss of 32% on amounts above 100,000 euro. Pretty extreme, but in reality the bank was bankrupt so they are a bit lucky they didn't lose it all.

VWAndy's picture

Take a look at the damage done by raiding the deposits. That sucking sound is thier economy.

The Most Interesting Frog in the World's picture

Their "economy", if you can call it that, was all bullshit.  Borrowing money to create prosperity, instead of producing, will always lead to failure.  Cyprus did not earn their success, and they certainly don't deserve to keep their ponzi scheme economy going.  Fix the problem now so our children, grandchildren, and the unborn do not have to deal with it.

Dragon HAwk's picture

But But.. Banks are Safe.. They told me So.. Everybody Knows it...

Kprime's picture

yep, they are backed by the full faith and power of the .gov

El Oregonian's picture

Some things are just more equal than others... Yours it seems, not so much. -Management