Dally wrote:
Do you think snatching bank deposits is actually the right thing to do? Logically (which is where the Germans come from) it is from two perspectives. Firstly, if the banks went bust they'd lose a 100% not 10% or whatever the latest suggestion is.
Where the Germans come from is not wanting to bail out Cypriot banks. They don't care how Cyprus raises the 6bn euors in cash so long as they raise it and the Germans aren't having to pay it. The bloke from the German stock exchange on Newsnight I linked to even called raiding deposits and "efficient" way to raise the cash but also said it was a matter for the Cypriot government to decide how to do it. It was basically "We don't care how you get it, just get it".
The depositors guarantee scheme means you are fully protected up to 100,000 euros which will cover the majority of savers. It's the big depositors who would be hit hardest by a default but then I for one would be spreading my assets across numerous banks if I were that rich so I was fully protected.
Secondly, conceptually bank deposits are not savings but loans in exchange for interest to allow fractional reserves banks to lend and do bussiness.
You are not lending your money to the bank but depositing with them which is definitely not the same thing. It is not a loan as you can ask for it back at any time you like.The level of return on savings (virtually nothing) doesn't reflect any risk either. Banks borrow by issuing bonds and this is the crux of the matter in terms of who takes any hit. The whole premise set out by the regulators in the Eurozone is that ordinary savers are not supposed to be penalised for bad banking because they can't be expected to quantify the risks. Bond holders on the other hand can and so if the banks can't pay their loans to these bond-holders back then tough, those are the rules.
What was proposed completely turned this around the other way and completely undermined the guarantee scheme in one fell swoop.
The reason the bond holders were not just allowed to take the hit is because they were institutions from outside Cyprus such as German banks and so ultimately German tax payers would be affected. But so what?
That is how the system was supposed to work. Bond holders were supposed to excerpt influence on the banks they invested in to be sensible. The fact even if they had been able to do that the "haircut" due to the the Greek economic collapse is what started this particular ball rolling is no reason to wreck the confidence in the banking sector as a whole. I was looking on the comments on the BBC yesterday and some people were posting that they had been to their UK banks and withdrawn virtually all their money to stick it under the mattress.
