Watch Out for Falling Banks

[billroper]

Via Instapundit, it appears that the stupid is in full swing over in the European Union. The EU has gone to bail out the banks in Cyprus. And it turns out that the deposit insurance is worth less than you might have thought. 6.75% less, to be exact. If you had insured deposits in the Bank of Cyprus, they are going to take 6.75% of your account away from you. If you had uninsured money, they're going to take 9.9% of the balance.

Now for the uninsured money, that's certainly better than losing, say, all of it. But for the insured money, it appears that this is some new meaning of insurance, more akin to the fellow who is looking for the protection money from the small businesses.

And since interest rates have been hanging near nominal zero for a long time, this means that money in your mattress was worth 6.75% more than money in the bank.

As several different commenters have noticed, that's the recipe for triggering a lot of runs on weak banks.

And runs on weak banks are exactly what you want if you're the European Union, right?

Idiots.

Comments

[patoadam]

Indeed.

[grey-lady.livejournal.com]

It also punishes those who have been responsible enough to build up savings, whilst those with only debt don't take any hit.

[sibylle]

I think it is a seriously bad decission to renege on the deposit insurance. And going to hit the people with only a little money in the bank much harder than those with a lot of it. So, not only is it unfair, it is also seriously bad for business - the deposit insurance of 100'000 Euro was widely discussed not goo long ago,when banks needed bailing out and people were worried, and it took a lot of the worrying out of the system. Now, not only will that disquiet come back, it also makes EU assurances of this kind look really worth a lot less than they were last week. A haircut ABOVE the 100'000 Euro line is what I would have implemented, if anything, if the measure is really necessary, But not this.

[kevinnickerson.livejournal.com]

From an economics standpoint, the stupid in the EU has been in full swing for years.

[crenelle.livejournal.com]

This is a moment of brilliance. It is going to reverberate for a while. I imagine everyone in the EU is now looking at jiggering their bank accounts and investment portfolio to quickly get their money the heck out of the way of potential government intervention, while they figure out how to get these people out of whatever job they're in that lets them try and do what they're doing to Cypress. Pulling capital out of the banks is gonna hurt. I'm in awe.