Cyprus + EU = Crisis
Who knew it would be tiny Cyprus that would send the global financial market running for the barf bags?
For those who haven't heard, the tiny nation island of Cyprus is the latest country to join the "oh shit we're bankrupt" list. Over the past several years, banks in Cyprus had made massive amounts of loans to Greek borrowers. When Greece itself bacame insolvent, the values of the Greek loans (which are "assets" to) Cypriot banks are holding became sour, and the Cypriot banks themselves are now insolvent.
Over the weekend, the Cyprus and EU governments agreed to a bailout deal under which EU would provide a EUR 10-billion (USD $12.9-billion) emergency loan to Cyprus to pop up its sick banks. As part of the agreement, depositors in Cyprus would take a "haircut" to their money. Bank deposit accounts with less than EUR 100,000 would be subject to a one-time confiscation of 6.75%; whereas accounts with over EUR 100,000 would be subject to a one-time confiscation of 9.9%. In other words, someone who had EUR 100,000 in his/ her account before the weekend will have EUR 9,900 less after, if the deal is passed by the parliament.
News sent the panicky Cypriot residents running to ATM bank machines to withdraw as much money as possible before the law becomes effective. But the banks are already placing a daily limit on the withdrawal, plus the machines ran out of cash within hours. Electronic transfer-outs have been suspended over the weekend also and Monday is a public holiday in Cyprus. Essentially, bank accounts in Cyrpus are frozen for now.
Needless to say, ordinary depositors in Cyprus are furious about the agreement, which is still subject to be passed by the Cypriot parliament. The government warns that if the parliament fails to pass the bailout agreement, the country's two largest banks would collapse.
As I said many times, I don't fully trust the global banking system. "Money" in a bank account is just a number and that number can change overnight even if you didn't touch your account. Keep some of your money in portable, hard assets that the government's hand cannot grab easily.
Cyprus + EU = Crisis
Who knew it would be tiny Cyprus that would send the global financial market running for the barf bags?
For those who haven't heard, the tiny nation island of Cyprus is the latest country to join the "oh shit we're bankrupt" list. Over the past several years, banks in Cyprus had made massive amounts of loans to Greek borrowers. When Greece itself bacame insolvent, the values of the Greek loans (which are "assets" to) Cypriot banks are holding became sour, and the Cypriot banks themselves are now insolvent.
Over the weekend, the Cyprus and EU governments agreed to a bailout deal under which EU would provide a EUR 10-billion (USD $12.9-billion) emergency loan to Cyprus to pop up its sick banks. As part of the agreement, depositors in Cyprus would take a "haircut" to their money. Bank deposit accounts with less than EUR 100,000 would be subject to a one-time confiscation of 6.75%; whereas accounts with over EUR 100,000 would be subject to a one-time confiscation of 9.9%. In other words, someone who had EUR 100,000 in his/ her account before the weekend will have EUR 9,900 less after, if the deal is passed by the parliament.
News sent the panicky Cypriot residents running to ATM bank machines to withdraw as much money as possible before the law becomes effective. But the banks are already placing a daily limit on the withdrawal, plus the machines ran out of cash within hours. Electronic transfer-outs have been suspended over the weekend also and Monday is a public holiday in Cyprus. Essentially, bank accounts in Cyrpus are frozen for now.
Needless to say, ordinary depositors in Cyprus are furious about the agreement, which is still subject to be passed by the Cypriot parliament. The government warns that if the parliament fails to pass the bailout agreement, the country's two largest banks would collapse.
As I said many times, I don't fully trust the global banking system. "Money" in a bank account is just a number and that number can change overnight even if you didn't touch your account. Keep some of your money in portable, hard assets that the government's hand cannot grab easily.