Cyprus: 10% Savings confiscation

[rocketdog]

Thoughts?  Advice?

Don't panic.

Have some gold, but also know that Cyprus and the Eurozone is in a much different place than the U.S.

+1... and also don't underestimate the power (and resiliency) of Capitalism (while it lasts, anyway).

[murphy_p_t]

Xtal...first, try to remain calm so you can think objectively...

I'll share just a little of my own experience. I have made two actions under similar situations...which have not been favorable so far.  The first was moving money from Euro into silver during a previous iteration of the Eurozone crisis...silver promptly lost 25% or so. Although the timing was unfortunate on my part, I understand why I made the decission at the time & don't regret it. My time frame is 5-25 years...not a few months.

I also made a similar decision, when B. Hussein Obama was the apparent winner a few months ago. Even though I'm "underwater" on this move, I am perfectly at ease...again because I know why I made this decision...and I'm not down that much. I have little doubt I'll be glad of making this move by the end of the four year term.

Yes, they were both hasty decisions, which is very unlike me to do...but I know why I made the decisions & I don't regret making the same...even though I would have been better doing nothing at the time...obvious now in hindsight, as of today.


Unlike doing what I did...you might sit on whatever you think for at least a week or two to see if you still feel that way.


Hope that helps.

[Libertarian666]

OK guys, this Cyprus thing has gotten me into an all-out panic.

I had very little faith in the financial system before, and now I have not one iota.  I love the principles behind the Permanent Portfolio, and I think it's the best way to allocate one's savings in normal times (whatever that means).

But I'm worried that this thing in Cyprus could be the modern equivalent of the assassination of Archduke Ferdinand.

I'm seriously considering reducing my 401(k) contribution to 5% (to keep the employer match) and buying as much physical gold as possible.

(So basically I'd have a small PP based on my 401(k) [stocks/bonds] plus some cash, and have a larger Variable Portfolio based on gold).

I know that it's a bad idea to make decisions under emotional duress, but I am seriously freaking out right now. 

(To add flavor to the mix, my husband has all of his investments -- which is much more than what I have saved up -- in stocks, bonds, and TIPS.  No gold.  He has utter faith in institutions and governments, and even this business in Cyprus has left him unfazed.  I worry that his savings, which represent years of hard work and frugality, could evaporate like a shallow puddle on a sunny day.  We both manage our own investments, but I'm thinking I should invest in more physical gold just to balance his out.)

Thoughts?  Advice?

I know I would be feeling VERY concerned right now if my family's portfolio didn't have at least the 25% allocation recommended by HB, for events precisely like this. So if this prods you into getting as close to that as possible, consider it a wakeup call while you can still take action.

[Xtal]

Thanks, all.  I do feel better, and I'll wait at least a few days before making any changes.  I'm not planning to sell anything off; just planning to change how I allocate things going forward.

I know I would be feeling VERY concerned right now if my family's portfolio didn't have at least the 25% allocation recommended by HB, for events precisely like this. So if this prods you into getting as close to that as possible, consider it a wakeup call while you can still take action.

Libertarian666, that's it exactly.  My husband thinks I'm crazy-go-nuts for wanting to save so much physical gold.  I think he's a bit unwise for *not* holding gold.

I feel like I have to be overweight in gold just to have overall balance within our family.

The way I see it, one of us may be wrong, but between the two of us, we should be OK overall.

[whatchamacallit]

I found this information interesting about Cyprus gun regulations:

http://en.wikipedia.org/wiki/Gun_politics#Cyprus
Cyprus has strict gun control. Private citizens are completely forbidden from owning handguns and rifles in any calber, even .22 rimfire. Only shotguns are allowed, and these require a license

This whole thing seems like a clear example of the tyranny that our 2nd amendment would prevent.

I don't believe this would happen in the United States because of the armed population.

[k9]

Having depositor's lose money is the best solution. It doesn't matter if they have a lot or a little. The market has been overvaluing the promises of government. The government can't suspend the laws of economics.

Well, you can't be more wrong actually. What the government is doing is precisely going againt the "laws of economics". The laws of economics says that debt should be paid first. If you don't have enough money to pay off your debt, you're broke. If you're broke, stockholders should loose everything before bond holders and depositors are concerned at all.

[clacy]

I found this information interesting about Cyprus gun regulations:

http://en.wikipedia.org/wiki/Gun_politics#Cyprus
Cyprus has strict gun control. Private citizens are completely forbidden from owning handguns and rifles in any calber, even .22 rimfire. Only shotguns are allowed, and these require a license

This whole thing seems like a clear example of the tyranny that our 2nd amendment would prevent.

I don't believe this would happen in the United States because of the armed population.

Leftists want to confiscate our guns here, so that if one day they have to confiscate wealth, retirement accounts, etc "for the greater good", they are able to do so.

Socialism is a soft form of totalitarianism.  Totalitarianism usually doesn't end well for the masses.

[cnh]

Having depositor's lose money is the best solution. It doesn't matter if they have a lot or a little. The market has been overvaluing the promises of government. The government can't suspend the laws of economics.

Well, you can't be more wrong actually. What the government is doing is precisely going againt the "laws of economics". The laws of economics says that debt should be paid first. If you don't have enough money to pay off your debt, you're broke. If you're broke, stockholders should loose everything before bond holders and depositors are concerned at all.

Without making any firm statement about the "laws of economics" (actually, concerning economics, I think it's usually more about "suggestions" than "laws'), I recall reading that the depositors were vulnerable precisely because there's not much in the way of stock or bond holders to bear the brunt.  And I believe I heard that if they simply let the banks go bankrupt, then the depositors would lose everything. To convince the ECB to come in with a rescue package, Cyprus had to find a way to put some skin in the game.

I suspect there are a lot more functionally bankrupt euro zone banks that only exist because they're not marking to market. It'll be "interesting" to see when the other shoes start falling.

[Tyler]

Personally, days like today make me thankful for being diversified and not overweight in any one asset (including cash or gold).

The one thing it does make me think about changing, however, is my exposure to credit risk. Watching the government rewrite the finance rules on the fly is a good reminder that the finance sector isn't as safe as they want you to believe.  Trading TLT for treasuries, buying at least a few gold coins - there's no time like the present to check off a few things on the financial to-do list. 

[Reub]

Well, as long as they are doing it to the Russians and the "rich" it should be okay.
Right?

What an ignorant comment.

They're not "doing" it to the rich only.  They're doing it to small depositors too.  People with 100k and under are taxed at 6.75%.  Amoiunts above 100k are taxed at 9.9%.

However, the arrangement in the EU is that deposits are insured to 100k.

So what SHOULD have happened is that people with deposits under 100k should have been spared, while ONLY those with deposits over 100k should have taken the hit.  This was the insurance arrangement.  Risk/reward blah-blah-blah.

But it didn't work out that way, did it?

Sorry, my attempt at sarcasm obviously fell short!

[cnh]

Well, as long as they are doing it to the Russians and the "rich" it should be okay.
Right?

What an ignorant comment.

They're not "doing" it to the rich only.  They're doing it to small depositors too.  People with 100k and under are taxed at 6.75%.  Amoiunts above 100k are taxed at 9.9%.

However, the arrangement in the EU is that deposits are insured to 100k.

So what SHOULD have happened is that people with deposits under 100k should have been spared, while ONLY those with deposits over 100k should have taken the hit.  This was the insurance arrangement.  Risk/reward blah-blah-blah.

But it didn't work out that way, did it?

Sorry, my attempt at sarcasm obviously fell short!

For what it's worth, I enjoyed the sarcasm.

[GT]

I could tell it was sarcasm...

[MachineGhost]

Thoughts?  Advice?

It is a cultural and institutional issue regarding trust and confidence.  If you look back through U.S. history and its market performance, you will see that the market actually rallies during calamities, even Pearl Harbor which was probably the most fearsome event in modern times.

Cyprus is a tax haven and a money laundering paradise.  It is bush league and is divided in a civil war akin to Northern Ireland.

And it seems lost on most here, but it wasn't a tax.  It was a forced equity swap.  Instead of the bondholders as per usual in these situations, it was the depositors.  But they are now stockholders in the banks and have a vested interest.

[D1984]

Thoughts?  Advice?

It is a cultural and institutional issue regarding trust and confidence.  If you look back through U.S. history and its market performance, you will see that the market actually rallies during calamities, even Pearl Harbor which was probably the most fearsome event in modern times.

Cyprus is a tax haven and a money laundering paradise.  It is bush league and is divided in a civil war akin to Northern Ireland.

And it seems lost on most here, but it wasn't a tax.  It was a forced equity swap.  Instead of the bondholders as per usual in these situations, it was the depositors.  But they are now stockholders in the banks and have a vested interest.

Apparently the senior secured bondholders COULD have been made to take a hit but won't be. There wasn't much in the way of senior bonds (€184 million Euros; just over a sixth of a billion Euros) between all of the Cypriot banks but that's still €184 million Euros that would not have come out of the hides of ostensibly insured depositors (junior bondholders were apparently wiped out completely to the tune of €1.4 billion Euros....I'm presuming the common and preferred--if any--are toast at this point as well).

That means Cyprus needs approximately 5.58 billion Euros just to continue to get ECB/IMF and emergency liquidity support (7 billion Euros was the level required for that and they could get 1.418 billion by liquidating the junior and senior bondholders so 7 minus 1.418 = roughly 5.58...Cyprus truly needs about €17 billion to fully solve its banking problems and not just kick the can along like with the €7 billion above so if they want to solve things for good they need to find a way to come up with 15.58 billion after the bondholders have taken their lumps).

As it turns out, there are approximately €68 billion of deposits in Cyprus banks. Of these, €37.6 are UNINSURED deposits (over the €100K mark). About €25 billion of this €37.6 billion is foreign deposits which is largely Russian Mafioskis' money). If you make all uninsured depositors (for any amount over 100,000...anything less than that would be protected even for depositors who otherwise were uninsured due to having amounts over 100K) take a 1/2 hit (lose 50% of the amount on deposit as cash and have it forcibly converted to equity) all of a sudden you have $18.8 billion less in liabilities (since equity does not constitute an actual liability) which is more than the €17 billion needed to fix the problem...and you haven't touched any deposit less than 100K! )

WARNING: What follows below would probably be considered confiscatory--albeit likely legal if their FDIC works like ours--and I don't necessarily endorse it, but it might work and it would leave the insured depositors untouched)

Hell, if they wanted to they could go "all out" and simply liquidate the uninsured depositors completely, go into reorganization and pay the uninsured depositors pennies on the dollar if that (since they are just creditors of the bankruptcy estate at that point...or rather creditors of the EFA or whatever Cyprus's version of the FDIC is since it would be more of a bank shutdown/takeover than a bankruptcy if they did it FDIC style) and have a bank with and €30.4 billion of deposits and more than enough assets to cover them even if every depositor withdrew his/her money (I'm presuming that the assets the banks have aren't totally worthless....if they borrowed €68 billion in deposits and made €68 billion in loans with it-including some lent to Greece by buying Greek bonds which was a stupid investment but I guess seemed to them like a good idea at the time-with it then even if the loans/bonds are worth 45 cents on the Euro in a fire sale they still have enough--Only about €6.5 billion total was in Greek bonds which they lost 74% on....I'm assuming that at least some of their investments were better ones than that).

The risk of a bank run is lessened as insured depositors stayed whole (and even if they did withdraw their deposits the ECB/IMF could make it orderly by lending money to Cyprus' banks as a liquidity measure like the discount window since those banks now would have a surplus of assets to pledge as collateral--since more than half their liabilities just got wiped out) and uninsured depositors can't withdraw and stage a bank run because they just got any erstwhile withdrawable assets--anything over 100K per account--liquidated.)

You would then have a solidly capitalized bank  with at least some assets still producing income. At that point, if the assets were bringing in enough income you could sell (I said sell....not forced equity swapping...offer them common stock in a freely purchased mutually beneficial exchange) common stock to the depositors or to anyone else who wanted to buy any. Let's say the stock carried a €25 par value for purposes of the amount the dividend was calculated on and it paid a 1.5% annual dividend on that value. (a €0.375 dividend) After what just happened you'd think people would be (understandably) wary of buying common stock so let's assume the bank was only able to sell each share at a fifteenth of par value (€1.67 a share).....even this may seem high but there are always vulture funds and the like who will buy it...the same folks who bought Argentine and Greek debt at the height of those countries's respective crises and made a good bit from both because they bought when the price was so low). That would at least give the bank SOME equity stock cushion and the shareholders would be earning 22.5% per year just in dividends. Hire someone (maybe a German or American or Asian--NOT a Cypriot or Greek or other PIIGS country origin) banker who specializes in turnarounds of distressed banks and put him in charge of having the bank make sensible loans. Pay almost nothing on deposits but keep paying the dividend on the stock (Hong Kong banks did this--in order to have a high capital to debt ratio--is the 50s and 60s in order to encourage people to buy stock instead of become depositors). Eventually the stock price will go up once people see that the bank has turned its act around (hell, there are people who are willing to lend to Iceland again and it's less than five years since their crisis) and see that they can make almost 23% a year on the common just in dividends.

Again, I don't endorse all of the above and it IS a little extreme...but at least it puts the loss on those who "took the risk" of it--and knew full well that they could lose--and not on the insured depositors.

Granted, I don't think the Russian mob would want to use Cyprus as a money laundering pit or a tax haven any more...but considering what "hot money" inflows over the past twenty years did to Thailand, Malaysia, Mexico, Iceland, Ireland, Greece, and now Cyprus itself, that might just be a blessing in disguise.

[AgAuMoney]

I agree that the insured amounts should be sacrosanct.

My understanding is that a less than 16% "seizure" or "tax" on the outsized accounts would be needed.  In that case, wouldn't it make sense to legally structure it so that everyone kept their insured amount, plus whatever fraction of the excess remained after the recapitalization?

Or is that what you were saying but in terms of the mechanics?

[Tyler]

So now apparently the Russian gas company Gazprom is offering to bail out cypress banks in exchange for gas exploration rights in Cypress.  And conveniently leave all that Russian money untouched by the EU. 

http://www.weeklystandard.com/blogs/rep ... 07768.html

The whole situation is laughably criminal.  Cypress gets to choose between selling out to EU banksters or Russian mobsters.  Choices. 

[craigr]

The whole situation is laughably criminal.  Cypress gets to choose between selling out to EU banksters or Russian mobsters.  Choices.

That's an easy choice, take the Russians!

[cnh]

Two instances do not constitute a trend, but...

http://www.scoop.co.nz/stories/PA1303/S ... ealand.htm

Hat tip TG.

[rocketdog]

Two instances do not constitute a trend, but...

http://www.scoop.co.nz/stories/PA1303/S ... ealand.htm

Hat tip TG.

Damn.  Scratch New Zealand off my list of potential retirement destinations. 

[notsheigetz]

Some good news any way.

As expected gold and LT's went up and brought my PP into positive territory for the first time this year.

[craigr]

Two instances do not constitute a trend, but...

http://www.scoop.co.nz/stories/PA1303/S ... ealand.htm

Hat tip TG.

There is much in the news today about Cyprus and their bank depositors having a portion of their accounts taxed to offset their bailouts. Then, another article came out showing that something similar was being proposed in New Zealand in the event they ever have a banking crisis (they are not having one now, it sounds like this is pre-emptive):

New Zealand Planning Cyprus Style Banking Solution

I think some context and alternate perspective needs to be applied here and I'm never shy to do that, so here goes.

I am much more likely to support bank depositors bailing out a bad bank than everyone else that was not a customer (taxpayers).

Why?

1) Well for one, if customers know they are on the hook for bank malfeasance they are more likely to pay attention to what the bank is doing and withdraw their money if they don't believe in it.

2) Likewise, if the management knows that every customer will be wanting to hold them responsible if they do something that causes them to directly lose money, they may be more cautious. Today, customers will get FDIC so there is no direct pressure on management to behave. Further, management still gets to hold onto their golden parachute packages even in the face of gross incompetence.

3) When taxpayers bail out a bank it is invisible. Citizens don't get a bill for it. We just get more taxes and debt. But if you knew you could wake up in the morning and see 10% of your money gone, and only your money and not your neighbor's that wasn't at the bank, then you may be more careful with what you do. Maybe that bank offering the high-yield CDs is being too risky and you shouldn't be a customer there any more?

4) The idea that bank depositors will share the burden means if the bank has a problem, and depositors do lose a modest sum to offset the losses, then their asset base will shrink. It will shrink not only because X% of the deposited funds are now gone, but also the customers who lost money will be angry after the fact and many will leave. This solves the problem of "too big to fail" like Citibank, Bank of America, etc. If depositors lost money during the last crisis, and knew that the banks were making them absorb it, they would have lost customers and those banks would be a lot smaller today. "Too big to fail" would soon become "too small to stay in business."

5) With (4) above, depositor penalties re-introduces the negative feedback loop that capitalism needs to work. In capitalism you need bad decisions to have consequences. No consequences and the bad decisions can continue. The 100% depositor coverage of all accounts breaks this feedback and introduced moral hazard even more into banking.

6) The above will also allow independent bank rating services to crop up that will be more robust than rating agencies today. Consumers will can rely on them to do investigations into the bank balance sheets that can better spot risk potential. Think Consumer Reports giving an annual bank survey and you see your bank is ranked at the bottom. If you knew that you could be on the hook for some of the problems, you may leave the bank or force management to clean things up.

Now with that said, perhaps there is a way to provide accounts that are 100% insured, but in exchange for that they pay less in interest. Again, if someone wants safety they should be aware there is a cost.

So all in all, I'm thinking New Zealand is on to something. And in a way even the Cyprus situation is not as bad as being made out. There needs to be a way to control banking activity. More regulations and oversight are not enough (as has been shown repeatedly). There needs to be pain in the bottom line and pain in the ability for bad banks to attract and retain customers.

Ironically, making depositors a little responsible for the activities of their banks is likely to increase the chances that banks do not fail. It will likely make many of them be more risk averse (which is what you want your bank to be). Without a negative feedback built into the system, banks have become much larger, much riskier, and much more dangerous to global economic stability during a crisis.

[Kshartle]

Bravo for taking the time to write all that. In all sincerity, bravo.

Everything you wrote though should all generate a collective "dduuuhhhhhhh". The tragedy is that it doesn't.

The marketplace will provide all the regulation needed. Government insurance (which is really welfare, not insurance since insurance wouldn't have a limit and you'd actually buy it) is what what Browne referred to as the "sticker plan". Slap a sticker on the window that says FDIC insured and everyone will believe they are safe!

FDIC is not for the benefit of the depositors. It's for the benefit of the bankers at the expense of the taxpayers. If the depositors take a hit in Cyprus it is a win for freedom.

[D1984]

I agree that the insured amounts should be sacrosanct.

My understanding is that a less than 16% "seizure" or "tax" on the outsized accounts would be needed.  In that case, wouldn't it make sense to legally structure it so that everyone kept their insured amount, plus whatever fraction of the excess remained after the recapitalization?

Or is that what you were saying but in terms of the mechanics?

Everyone should definietly keep any amount under the insurance limit....that would be safe no matter whether you a depositor had one Euro or 10 million Euros on deposit (it's just that the person with 10 million would only have 100K safe since that is the limit on insured amounts and everything else would theoretically be wipe outable).

A 16% "seizure" on the amounts aboe 100K MIGHT be enough except for several things:

One, Russia has all but made it expicit that if its citizens deposits are liquidated, evn partially, that it will refuse to roll over its line of credit to Cyprus and said line of credit is for approximately 2.5 billion Euros.

Two, at least some of Cyprus banks' holdings are in Cypriot government debt which probably isn't worth as much at true mark-to-market as the banks are carrying it at what with all this talk of default and of haircuts,

Three, even if the banks assets ARE worth what they say, in the event that depositors want to withdraw en masse the assets may have to be sold at fire sale prices if the ECB refuses to extend enough liquidity against the assets at the short term discount window to "tide the banks over" until the assets can be sold in an orderley fashion. In such a case the assets would not really be worth 100 cents on the Euro so it's prudent to remove some risk by making the uninsured depositors take a steeper than potentially required haircut (since that means less total the bank will ahve to pay out when/if those depositors choose to withdraw which either means less assets have to be sold or the bank can be choosier and more selective about what it sells and when it sells it and can possibly get a better price),

Finally, even if none of the above applies right now at the current moment, what do you think the uninsured depositors will realistically do after being made to take a 15 or 16% haircut? That's right....withdraw everything they have left in what is basically a bank run. They can't do that if you forcibly convert the uninsured deposits to equity or wipe them out altogether(obviously the first option would be fairer if there's any equity to be had....although at this point saving the banks' balance sheets in order to have enough good assets to keep the insured depositors whole--without involving taxpayers' money--outweighs most other considerations IMO). OTOH, if you DON'T convert/wipe out the unisured deposits as above, you aren't going to get a second shot (i.e. you won't be able to do another recapitalization/forced conversion six months down the road, for instance) because all the deposits over 100K will (understandably and rationally) have fled by then. It's a one shot deal. Any equity "breathing room" you need to create by deposit-to-stock conversion or by liquidation of unisured deposits, you go ahead and do it now, because you sure as heck won't get a second chance. With that said, to be fair to the uninsured depsitors, things could be arranged so that AFTER all this mess blows over and the banks are in non-critical condition again, they would have the option to cash out some of their stock (or to be flat out paid back/recompensed in the event liquidation is done instead of DTE conversion) for what it was converted for in the first place...again, that would be AFTER things have settled down and would be done only IF there was any asset value left after the bank had been recapitalized to a rock-solid level.

[D1984]

Two instances do not constitute a trend, but...

http://www.scoop.co.nz/stories/PA1303/S ... ealand.htm

Hat tip TG.

There is much in the news today about Cyprus and their bank depositors having a portion of their accounts taxed to offset their bailouts. Then, another article came out showing that something similar was being proposed in New Zealand in the event they ever have a banking crisis (they are not having one now, it sounds like this is pre-emptive):

New Zealand Planning Cyprus Style Banking Solution

I think some context and alternate perspective needs to be applied here and I'm never shy to do that, so here goes.

I am much more likely to support bank depositors bailing out a bad bank than everyone else that was not a customer (taxpayers).

Why?

1) Well for one, if customers know they are on the hook for bank malfeasance they are more likely to pay attention to what the bank is doing and withdraw their money if they don't believe in it.

2) Likewise, if the management knows that every customer will be wanting to hold them responsible if they do something that causes them to directly lose money, they may be more cautious. Today, customers will get FDIC so there is no direct pressure on management to behave. Further, management still gets to hold onto their golden parachute packages even in the face of gross incompetence.

3) When taxpayers bail out a bank it is invisible. Citizens don't get a bill for it. We just get more taxes and debt. But if you knew you could wake up in the morning and see 10% of your money gone, and only your money and not your neighbor's that wasn't at the bank, then you may be more careful with what you do. Maybe that bank offering the high-yield CDs is being too risky and you shouldn't be a customer there any more?

4) The idea that bank depositors will share the burden means if the bank has a problem, and depositors do lose a modest sum to offset the losses, then their asset base will shrink. It will shrink not only because X% of the deposited funds are now gone, but also the customers who lost money will be angry after the fact and many will leave. This solves the problem of "too big to fail" like Citibank, Bank of America, etc. If depositors lost money during the last crisis, and knew that the banks were making them absorb it, they would have lost customers and those banks would be a lot smaller today. "Too big to fail" would soon become "too small to stay in business."

5) With (4) above, depositor penalties re-introduces the negative feedback loop that capitalism needs to work. In capitalism you need bad decisions to have consequences. No consequences and the bad decisions can continue. The 100% depositor coverage of all accounts breaks this feedback and introduced moral hazard even more into banking.

6) The above will also allow independent bank rating services to crop up that will be more robust than rating agencies today. Consumers will can rely on them to do investigations into the bank balance sheets that can better spot risk potential. Think Consumer Reports giving an annual bank survey and you see your bank is ranked at the bottom. If you knew that you could be on the hook for some of the problems, you may leave the bank or force management to clean things up.

Now with that said, perhaps there is a way to provide accounts that are 100% insured, but in exchange for that they pay less in interest. Again, if someone wants safety they should be aware there is a cost.

So all in all, I'm thinking New Zealand is on to something. And in a way even the Cyprus situation is not as bad as being made out. There needs to be a way to control banking activity. More regulations and oversight are not enough (as has been shown repeatedly). There needs to be pain in the bottom line and pain in the ability for bad banks to attract and retain customers.

Ironically, making depositors a little responsible for the activities of their banks is likely to increase the chances that banks do not fail. It will likely make many of them be more risk averse (which is what you want your bank to be). Without a negative feedback built into the system, banks have become much larger, much riskier, and much more dangerous to global economic stability during a crisis.

Fair enough if the ostensibly insured depositors know beforehand that yes, they can lose money which seems to be what NZ is planning....I think what most of us are against is the ex-post-facto making-rules-up-as-we-go-along nature of Cyprus's planned deposit haircut. It's one thing to say "from X date forward deposits will not be insured (or that they will be insured but in the event of bank failure even insured depositors will take a 10% haircut)" it's quite another to say "This deposit is backed by the full faith and credit of the....oh, wait, no it's not...suckers!!" especially when there is seemingly quite enough "cushion" in the form of uninsured deposits (those above the 100K level)--and in bonds--that could be haircut before the insured deposits were touched.

[RuralEngineer]

Fair enough if the ostensibly insured depositors know beforehand that yes, they can lose money which seems to be what NZ is planning....I think what most of us are against is the ex-post-facto making-rules-up-as-we-go-along nature of Cyprus's planned deposit haircut. It's one thing to say "from X date forward deposits will not be insured (or that they will be insured but in the event of bank failure even insured depositors will take a 10% haircut)" it's quite another to say "This deposit is backed by the full faith and credit of the....oh, wait, no it's not...suckers!!" especially when there is seemingly quite enough "cushion" in the form of uninsured deposits (those above the 100K level)--and in bonds--that could be haircut before the insured deposits were touched.

In addition, it's not A bank getting bailed out, it's the entire banking industry of Cyprus is my understanding.  That kind of restricts you from making an informed decision about how to avoid this kind of a situation.

Maybe such a mechanism could work if it were set up before hand, but this kind of after the fact bullshit has got to go.