Bank runs, bank holiday & 10pct bailout tax on deposits in Cyprus

pmbug

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Looks like a "Cyprexit" is in the cards then.
 

swissaustrian

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ECB threatens to collapse Cyprus' banks by withdrawing all loans if there is no deal by Monday:
ECB Threatens to Cut Cyprus Funding on Monday
The European Central Bank set Cyprus a Monday deadline to agree a bailout plan, threatening to cut off funding to the islands' cash-strapped banks if a programme is not agreed by then with the EU and the IMF.

The decision by the ECB's Governing Council, announced on Thursday, gives Cyprus a last chance to agree a bailout that bears the EU/IMF stamp, or else succumb to financial meltdown.

Cyprus has faced the prospect of bankruptcy since Tuesday when its tiny parliament voted unanimously against a levy on bank deposits to raise 5.8 billion euros ($7.51 billion)demanded by the EU under a 10 billion euro rescue.

The ECB's role is crucial because it controls the provision of central bank funds to Cypriot banks - lifeblood without which the island's bloated financial sector cannot function properly.

With Cyprus sovereign bonds ineligible for use as collateral for ECB refinancing operations due to their low credit ratings, the Cypriot central bank is providing banks with Emergency Liquidity Assistance (ELA).


These emergency loans are more easily available, but the ECB's Governing Council must approve provision of ELA.

"The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013," the ECB said in a statement on Thursday as the Council met in Frankfurt.

"Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF program is in place that would ensure the solvency of the concerned banks," it added.

Cypriot banks are greatly reliant on ELA for funding. At the end of January, they had taken around 9.1 billion euros from the country's central bank through the program, the Central Bank of Cyprus balance sheet showed.

At the same time, the country's banks had taken only 376 million euros from regular ECB liquidity operations. The ECB stopped accepting Cyprus government bonds as collateral in June, which made it more difficult for the country's banks to participate in regular ECB operations.

The ECB's firm stand follows skepticism of some of its policies, particularly in Germany, where the bank has been criticized for being too lax on sticking to rules.

ECB policymaker Joerg Asmussen, a German, stressed on Wednesday that the ECB can only allow the provision of emergency liquidity to solvent banks, and that without an aid program to recapitalize Cypriot banks their solvency "cannot be assumed".

The central bank is in no mood to bend its rules for Cyprus.

Some ECB policymakers, led by Bundesbank chief Jens Weidmann, are still uncomfortable after the central bank agreed last month to a deal to ease Ireland's bank debts.

Weidmann, and some others at the ECB, are concerned the Ireland deal amounts to "monetary financing" - the funding of governments with central bank money, a taboo for the ECB.

But Ireland has swallowed a severe dose of austerity medicine and as such is the role model for the euro zone's other debt-ridden economies. Cyprus, unwilling so far to accept the conditions for unlocking EU aid, is not.
http://www.cnbc.com/id/100576485

Outright panic behind the scenes, CyprExit talk:
Exclusive - Euro zone call notes reveal extent of alarm over Cyprus
BRUSSELS | Thu Mar 21, 2013 10:56am GMT

(Reuters) - Euro zone finance officials acknowledged being "in a mess" over Cyprus during a conference call on Wednesday and discussed imposing capital controls to insulate the region from a possible collapse of the Cypriot economy.

In detailed notes of the call seen by Reuters, one official described emotions as running "very high", making it difficult to come up with rational solutions, and referred to "open talk in regards of (Cyprus) leaving the euro zone".

The call was among members of the Eurogroup Working Group, which consists of deputy finance ministers or senior treasury officials from the 17 euro zone countries as well as representatives from the European Central Bank and the European Commission. The group is chaired by Austria's Thomas Wieser.

Cyprus decided not to take part in the call, a decision that several participants described as troubling and reflecting the wider confusion surrounding the island's predicament.

"The (Cypriot) parliament is obviously too emotional and will not decide on anything, if Cyprus does not even feel that they can attend the call it is a big problem for us," the French representative said, according to the notes seen by Reuters.

"We have never seen this."

The German representative raised the need to learn more about capital outflows from Cyprus to Russia and Britain, and emphasised that "we stand ready to find a solution immediately" as long as the parameters of the bailout agreed among euro zone finance ministers on Saturday are respected.

The official also referred to the need to resolve Cyprus's two biggest banks, both of which are close to collapse, and mentioned the possibility of Cyprus leaving the euro zone.

In the event of an exit, the official said steps needed to be taken to "ring-fence" the rest of the euro zone from the impact and to ensure there was no contagion to Greece.

One issue repeatedly raised on the call was the risk of large outflows of capital once Cypriot banks reopen, probably on Tuesday. The ECB representative said the situation was being closely monitored and "technical preparations" were being made to try to limit the amount of any outflow.

"Some additional laws need to be passed. Overall we are in a very difficult situation," the official said, according to the notes. "(We're) trying to do everything within the powers to limit any unauthorised outflows."

Cyprus's finance minister continued discussions in Moscow on Thursday to see whether a way can be found to involve Russia in the bailout so that large depositors in Cypriot banks, many of whom are Russian, are not hit with a one-off levy.

Financial markets have largely taken the problems in Cyprus in stride, perhaps calculating that any collapse of an economy worth only around 17 billion euros, will have only a limited impact, or that a solution will be found in the end.

"Markets believe that we will find a solution and that we will provide more money and this might not be the case," one of the participants on the call said, according to the notes.

In wrapping up the teleconference, the chairman described the situation as "foggy" and expressed concern about Cyprus's decision not to take part in the call.

"The economy is going to tank in Cyprus no matter what," the notes quoted him as saying. "Restrictions on capital will probably be imposed," he said, adding that further conference calls would be organised in the coming days.

(Writing by Luke Baker, editing by Mike Peacock)
http://uk.reuters.com/article/2013/03/21/uk-eurozone-cyprus-call-idUKBRE92K0DW20130321
 

pmbug

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There are essentially 3 options that I see:
  1. ECB caves and gives them free money (black eye for Merckel and dangerous precedent at this point for the next dominoes, so likely not going to happen - especially given news posted by sa above)
  2. Russia becomes their white knight (I'm guessing Russia won't do this unless they end up with huge leverage - the kind that would be unpalatable to western powers [like a Russian naval base on Cyrpus])
  3. Cyprus leaves the Euro, restores their own currency, devalues it and endures significant short to medium term pain (local politicians want to avoid this at all costs, but it's looking like the most likely scenario)
 

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Cyprus considered nationalizing pension funds and ordered banks to stay shut till next week to avert financial chaos after it rejected the terms of a European Union bailout and turned to Russia for aid.
...
Anastasiades chaired meetings throughout Wednesday with party leaders, ministers and officials from the troika of EU, ECB and International Monetary Fund lenders. The government said a "Plan B" was in the works.

Officials said it could include: an option to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.
...
http://ca.news.yahoo.com/cyprus-throws-bailout-disarray-seeks-russian-help-074339638--sector.html

You don't say.
 

swissaustrian

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There are essentially 3 options that I see:
  1. ECB caves and gives them free money (black eye for Merckel and dangerous precedent at this point for the next dominoes, so likely not going to happen - especially given news posted by sa above)
  2. Russia becomes their white knight (I'm guessing Russia won't do this unless they end up with huge leverage - the kind that would be unpalatable to western powers [like a Russian naval base on Cyrpus])
  3. Cyprus leaves the Euro, restores their own currency, devalues it and endures significant short to medium term pain (local politicians want to avoid this at all costs, but it's looking like the most likely scenario)
2 and 3 could be combined
 

ancona

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If Cyprus leaves the Euro, that still leaves the annoying little problem of re-denomination back to the Cypriot Pound. does this trigger CDS? My guess is that if "they" don't trigger CDS on a Cyprus exit and repudiation, then nothing will and the whole swap complex collapses in the heap it rightfully deserves to be in.

That said, what happens to the rest of the continent? Italy? Spain? Portugal?

does this collapse the banks once and for all?
 

swissaustrian

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Dead Russian whistleblower at forefront of Cyprus bailout crisis
Sergei Magnitsky discovered a huge Russian tax fraud — $230 million had been stolen from the Russian government, said his ex-boss, William Browder of Hermitage Capital Management, a former major investor in Russia.

By: Olivia Ward Foreign Affairs Reporter, Published on Wed Mar 20 2013

In life, Sergei Magnitsky was a modest Moscow tax lawyer with a dogged determination to track financial wrongdoers.

More than four years after his death, he is part of a spiralling banking crisis that has swept up Russian money launderers, Cypriot citizens and their increasingly desperate government in a tornado that could take down the tiny island state, and suck in already wobbly countries in the eurozone.

Cyprus is struggling to stave off bankruptcy with a $13 billion (10 billion euro) bailout that lenders insist must be tied to taxes on Cypriot bank accounts — touching off fury on the island and in Russia, whose high-rollers use it as a tax haven. On Wednesday Cyprus pleaded for an alternative loan from Moscow, so far without results.

Some of Cyprus’s bailout woes may be linked with Magnitsky’s quest for justice, said his ex-boss, William Browder of Hermitage Capital Management, a former major investor in Russia, who hired him to probe murky Russian tax refunds in the mid-2000s.

“Sergei discovered a huge Russian tax fraud,” said Browder in a telephone interview. “He found that $230 million was stolen from the Russian government. But we knew there would be no accountability, so we followed the money ourselves.”

Magnitsky said he had found a “web of corruption” spun by Russian tax officials who allegedly masterminded the biggest Russian tax heist of the century.

With the help of international police and journalists, he traced $135 million in laundered funds, $31 million of it washed through Cyprus.

But after blowing the whistle to the Russian authorities in 2008, Magnitsky was himself arrested, jailed, and died in custody in November 2009 at the age of 37.


Documents obtained by Browder allegedly proved Magnitsky was beaten to death in prison, as well as denied treatment for a serious medical condition. But Russia dismissed the charges, and is instead pursuing a rare posthumous case against Magnitsky, as well as Browder, for tax fraud. The trial is due to begin March 22.

Browder’s lobbying efforts for Magnitsky launched financial investigations in several countries, and the passage of a U.S. bill to deny travel and investment access to Russians accused of involvement in Magnitsky’s death. Meanwhile, an international campaign continued.

“We wrote to police and prosecutors in all jurisdictions alerting them to the laundered money,” Browder said. “A number of them opened criminal cases. Cyprus steadfastly refused.”

He presented documents alleging that five Cypriot banks had received money from a Russian “criminal gang” linked with high ranking officials in Russia’s spy agency and interior ministry. In December, as Cyprus was in tough bailout talks with its European neighbours, it said it had launched an investigation.

By that time Browder had extended his campaign to alert lawmakers in the Netherlands, Finland and Europe’s economic powerhouse, Germany, that Cyprus had stonewalled on the case.

“They wrote to their finance ministers and it became a political issue in Europe,
” he said.

A report leaked to the German weekly Der Spiegel by the foreign intelligence service estimated that Russians, including 80 oligarchs, had deposited more than $26 billion in Cypriot banks: outpacing the island’s $23 billion GDP.

Suspicions of money-laundering and criminal activity made Cyprus’s bailout more harrowing. European lenders questioned why they should rescue rich Russian tax evaders, and demanded that the pain be shared through a 10 per cent tax on savings in Cypriot banks. On Tuesday, the island’s lawmakers rejected the offer, and the government redoubled efforts for a Russian loan.

“Cyprus is a tax haven,” said Dev Kar, lead economist for Global Financial Integrity in Washington, and a former IMF official. “Foreign deposits in Cypriot banks are much larger than domestic ones. Two-thirds are foreign and one-third domestic.”

Kar, the co-author of a study of illicit financial flows from Russia, said that more than $211 billion has moved out of Russia since the heyday of “wild east” capitalism in 1994.

“That amount could be understated,” he said. “But it’s difficult to tell how much went to Cyprus because the system is so opaque.” At the high end, he suggested, it could have banked $100 billion in Russian funds. Russia’s Regional Banking Association says Russians hold about $20 billion in deposits $20 billion in deposits in Cyprus.

“This isn’t just an abstract notion of money laundering,” Browder said. “The Magnitsky case is a real-life example of something that everybody knows is going on. Right now, the Europeans are going to open the bank records on the case, so we’ll see how it plays out.”
http://www.thestar.com/news/world/2...n_rescue_eu_threatens_to_cut_off_country.html
 

pmbug

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lol. Like every major bank in the world hasn't handled dirty (laundered) money. None of them are innocent or pristine - especially the TBTF banks.
 

pmbug

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Interesting interview with a Cypriot MP (commentary starts @ ~5:35 - says they are likely to leave Euro @ ~10:10 mark):

 

Unbeatable

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Exactly PMbug, like HSBC.

So much propaganda going on right now.

As though Syria would use chemical weapons against the rebels at this stage and then also just happen to do it when Obama is visiting Israel.

Or that the chinese would launch cyber attacks on South Korea etc. that are traceable to an IP address in... China.
 

pmbug

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...
Are they (Russia) going to accelerate their transition into gold?
Cyprus’s financial crisis may force Russia to review the share of euros in its international currency reserves, the world’s fourth-largest stockpile, according to Prime Minister Dmitry Medvedev.

An unprecedented levy on deposits in Cyprus banks that was backed by European finance officials as a condition for the country to receive a bailout, was “not just unpredictable, it’s evidence of some inadequacy,” Medvedev said, according to a transcript of his interview with Interfax and foreign media on the government’s website.

“We have 41 percent or 42 percent of our reserves in euros,” Medvedev said. “It’s big money, and we, like any country, value predictability.”
...
http://www.businessweek.com/news/20...eview-share-of-euro-in-reserves-medvedev-says

:noevil:
 

swissaustrian

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Even the Russians are not openly going to talk about buying gold.

Having said that, let's take a look at their actions:
 

bushi

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...does anyone care to take a step back, and figure out a pattern: these little, island nations, somewhere on the outskirts of mainlands - Iceland, Ireland, Cyprus - they all have "enjoyed" banking "industry", that has grown out of proportion to their respective economies. Banks, are in a business of manufacturing debts. That's what they "create", to make money - debts. I mean, what could possibly go wrong, ever? Much less so, three times in a row :rotflmbo:. Next in sight, the UK. Another island nation, with disproportional size of banking "industry". This is going to be a huuge one, and Eurocrats don't exactly love Brittons, for being seen as an opposition to many of their cherished totalitarian-bureaucratic monstrosities... Who's going to bail out one of the major international financial centers?
 

pmbug

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Island nations have few natural resources to contribute to the global economy (at least on a scale to be competitive with larger countries). Business (incorporation) and banking services is one of the few industries where they can offer a competitive advantage.
 

bushi

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Island nations have few natural resources to contribute to the global economy (at least on a scale to be competitive with larger countries). Business (incorporation) and banking services is one of the few industries where they can offer a competitive advantage.
...yeah, the geniuses in charge seem to realize their natural constraints, and turned into that "hey, I know, let's do that banking thing, you just create wealth and prosperity out of nuthin' there, so we ain't need no stinking resources!" mode. Seemingly, for some unknown reason, it does not last too long, before turning sour...

Now, if we get another step back, and imagine our whole planet/it's economy, as a big, solitary island, surrounded by (quite harsh and rather inhabitable) space... Are we getting somewhere yet, with the big picture? ;) Enter Keynesians: "nononono, your analogy is completely wrong, blahblahblah...."
 

Unbeatable

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It appears, based on government officials, that things are going a little critical in Cyprus. Following rumors of the closure (restructuring) of Laiki Bank and its merger of good/bad bank assets with Cyprus Popular Bank, we get this news:

*CYPRUS'S NEOFYTOU SAYS NEW FACTS RELATED TO CYPRUS POPULAR BANK
*CYPRUS HASN'T HAD ANY FURTHER NEWS FROM RUSSIA: OFFICIAL
*CYPRUS POPULAR BANK HAS "FEW HOURS OF LIQUIDITY LEFT": OFFICIAL'
http://www.zerohedge.com/news/2013-03-21/cyprus-popular-bank-only-few-hours-liquidity-left
 

pmbug

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Yeah, but I think we all know Strauss-Kahn was set up with that "sex scandal". ...
Eric King: ... The bottom line here is Lagarde took on Putin, but Putin has checkmated both her and the IMF the same way a Russian grandmaster chess player would destroy his opponent.’ Within hours of KWN reporting that news, Lagarde's apartment was raided by police and she is now scrambling.”

Sinclair: “The important point is, how long has this case been going on in which there was a police raid on the Lagarde’s apartment? This is a 20-year old case, making it look a little less like just a coincidence. I would also add to that I don’t think it’s any coincidence that the Chairman of the Federal Reserve has now indicated the possibility that he will not be reappointed, and that he will not accept the reappointment....
...
Again, what the IMF’s catastrophe in Cyprus has done is put into jeopardy every single dollar that any central bank has put in to maintain sovereign solvency. This is enormous. The IMF originally telling Cyprus to ‘Go to hell,’ has in fact said to the world, ‘Go to hell.’ The Western financial world may now indeed go to hell, and Fed Chairman Bernanke knows it.”
...
This historic event is one of the single largest and most important in my 50+ years of being involved in markets. It is as serious as what I have said, and the Chairman of the Federal Reserve is saying, ‘They are going to screw up all of my work; to hell with them, I don’t want to be Chairman when this hits the fan.
http://kingworldnews.com/kingworldn..._IMF_Disaster_Forces_Bernanke_Out_Of_Fed.html
 
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