Tuesday, March 26, 2013

Banking crisis over? I don't think so...

It apears that the European Union is well on its way to re-establishing feudalism in the Euro Zone.  The debacle in Cyprus will establish a precedent for future behaviour.

Backed by euro zone finance ministers, the bailout plan will spare the Mediterranean island a financial catastrophe by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits of less than €100,000 to the Bank of Cyprus to create a "good bank", leaving problems behind in a "bad bank".

Deposits above €100,000 in both banks, which are not guaranteed by the state under EU law, will be frozen and used to resolve Laiki's debts and recapitalise the Bank of Cyprus, the island's biggest, through a deposit/equity conversion.

So, to preserve the appearance of cohesiveness, the EU will resort to out-and-out theft. Further, the question remains, will it really do any good?  What is the incentive to leave any money in a Cypriot bank?  Or any EU bank for that matter?  Or any bank anywhere?  The pittance of interest that banks pay these days on deposits is hardly worth the risk and the hassle.  Considering the risk of confiscation and the government's propensity for using banks a form of surveillance, it makes sense to unbank or at least underbank.

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