March 25, 2013

Euro Template to Confiscate European Bank Accounts

As reported in my previous post, signals are there already that Cyprus will not be an isolated case and that similar confiscations will be applied to other nations in the Eurozone.
Of course having the luxury of the Eurogroup leader to agree with you and stating it publicly the day after is something unexpected.
Mr. Dijsselbloem, Leader of the Eurogroup and Dutch Finance Minister stated that Cyprus will become the new template for resolving Eurozone banking problems.
Markets did not appreciate the candour of Mr. Dijsselbloem (apparently it is pronounced Diesel-BOOM), his explosive remark did not take long to bring down the markets and put an end to the insane optimism following the Cyprus bailout deal.


Talking with Reuters, on the resolution model just put in place in Cyprus:
A rescue programme agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, the head of the region's finance ministers said.

"What we've done last night is what I call pushing back the risks," Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times hours after the Cyprus deal was struck.

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders," he said.

After 12 hours of talks with the EU and IMF, Cyprus agreed to shut down its second largest bank, with insured deposits - those below 100,000 euros - moved to the Bank of Cyprus, the country's largest lender. Uninsured deposits, those accounts with more than 100,000 euros, face losses of 4.2 billion euros.

Uninsured depositors in the Bank of Cyprus will have their accounts frozen while the bank is restructured and recapitalised. Any capital that is needed to strengthen the bank will be drawn from accounts above 100,000 euros.

The agreement is what is known as a "bail-in", with shareholders and bondholders in banks forced to bear the costs of the restructuring first, followed by uninsured depositors. Under EU rules, deposits up to 100,000 euros are guaranteed.

Translation:

It is now officially dangerous to have a big bank account in Europe. In other words being an Uninsured Depositor.


After the not so amiable reaction of the financial markets Mr. Dijsselbloem (Diesel BOOM) has clarified his remarks on the Eurogroup's website:
Statement by the Eurogroup President on Cyprus

25/03/2013 - Statement

Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.

Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.
I'm sure now all the Ininsured Depositors feel very reassured, Thank you sir!


Post a Comment