Cyprus Deposits Plunge At Fastest Rate In History

With capital controls like these who needs bank runs.

Perhaps the most underreported news to come out of Europe this morning had nothing to do with PMI or employment or credit creation in the Eurozone. It had to do with Cyprus - the insolvent island that everyone forgot - and which since its March bail in has been left for a state of Schrodingerian suspended animation, where it is either alive or dead depending on what propaganda wave function it had to satisfy.

Recall that many, most certainly us, said that the imposed capital controls would have no impact in stemming the massive outflow of what money is left with the insolvent banking system, and very soon the entire banking system would remain deposit, and thus funding, free requiring more and bigger bailouts. Sure enough, this was just confirmed when the Central Bank of Cyprus reported that not only did local deposits drop to a level not seen since 2007, plunging by the second fastest absolute amount in history, but declined at the fastest rate ever!

And if the current outflow is not stemmed, there won't be a single Euro (Cypriot Euro, not European Euro) in deposits left in under one year.

Total Cyprus Bank Deposits:

Monthly Change in Deposits:

And rate of deposit change - biggest drop ever.

Luckily, the central bank provided an explanation for this unprecedented. Apparently it is simply due to the not all too clear shenanigans involved with the failure of its banks, and the reclassification of various liabilities when one bank simply folded:

First - its explanation for the historic May deposit crash:

May 2013: The data for the reference month of April 2013 reflect the provisions of the “Bailing-in of Bank of Cyprus Public Company Limited Decree of 2013”. Specifically, 37,5% of unsecured deposits were converted into equity, while a further 22,5% and 30% of unsecured deposits were temporarily blocked but remain under deposits. On the other hand, the data for April 2013 do not yet reflect the provisions of the “Sale of Certain Operations of Cyprus Popular Bank Public Co Ltd Decree of 2013, which was implemented on the 19th of May.              

Handy information, and quantified too. But then the explanation for the second drawdown leaves many more open questions, as there is no quantification of the shift.

July 2013: The data for loans and deposits for June 2013 reflect the provisions of the “Sale of Certain Operations of Cyprus Popular Bank Public Co Ltd Decree of 2013”. As from June 2013 Cyprus Popular Bank Public Co Ltd is not considered a Monetary Financial Institution for statistical purposes and therefore, its remaining balances (which were not transferred to Bank of Cyprus Public Company Ltd) are excluded from the outstanding amounts. However, according to the statistical guidelines of the European Central Bank this should not be considered a financial transaction and therefore an adjustment to remove its impact is included under “reclassifications adjustments” with a negative sign. For details please refer to part 4, “Technical Notes”.                                

We are confident the CBC will have many more such "technical notes" explaining why deposits continue to collapse in the coming months.

The good news for all other insolvent European peripheral countries is that the local depositor base is absolutely convinced that what happened in Cyprus is a one-time, non-blueprint event and have zero reservations about keeping their own deposits in place with the local banks, where they are perfectly safe and sound.