Cyprus runs on banks can bankrupt many banks around the world and cause great depression
Cyprus is small, but if Cyprus taxes the depositors and get runs on banks, then it will affect the depositors around the world. A lot of Cyprus depositors are actually Russian. This can cause depositors around the world to withdraw money from weaker banks around the world. Banks are usually highly leveraged. Just a small percentage of withdraws can cause them to bankrupt. This can become very similar to great depression runs on banks. When banks are scared, they do not lend, and that will eventually put the economy into downward spirals. We are only at the very beginning of the crisis.
They began a while ago in Cyprus too but are conveniently not mentioned in the press:
From EuroMoney on March 6:
"Nicosia first requested aid from the troika in June, so if talks go down to the wire it will have taken a full year and a looming bond redemption to force the situation to a close.
Sources close to the negotiations tell Euromoney that the prospect of depositor bail-in is very real. While initially it was assumed that the contagion risk would prevent such a move, the thinking is now that depositors in healthy eurozone financial institutions view the situation in Cyprus as sufficiently unique and isolated that such a move would not trigger deposit flight."
"So even if depositor bail-in in Cyprus becomes reality, this victory might turn out to be a pyrrhic one. Bank of Cyprus reported that €1.7 billion of deposits left the bank in January and recent reports suggest €1 billion left Cyprus’s banks in the first two weeks of February alone."
The press says 32 billion in Euro's on deposit. I thought it was closer to 70 but fine, we'll go with the press which actually makes it worse. That means 7.7% of deposits (2.7 over 34.7) left Cyprus AT A MINIMUM more than a month ago. How much left before that? Was my 70 Billion figure correct and 38 Billion left?
Who knows BUT if that much left on the threat of a bail-in, and it looks like the smart money already knew of it, how much runs now.
Bank run or Capitol Controls. IT IS TOO LATE to stop capitol from fleeing Cyprus...The banks will collapse no matter what.
I would expect the Cyprus situation spooked many depositors around the world. Especially big depositors who has money in many countries. I would not be surprised to see more news come up in the next few weeks that more banks in Euro zone are having trouble because the depositors are withdrawing money out of Euro zone. We are only at the very beginning of the crisis. Just like the great depression bank run was not only one day event. The Cyprus bank run is not going to be over in one day too.