Final Cyprus Bail-In Amounts

davefairtex
By davefairtex on Mon, Dec 23, 2013 - 2:20am

In the David Collum interview there were some questions as to how much the depositor haircuts were in the Cyprus bank bail-in, for deposits over 100,000 euros.  The answer was provided about six months ago, the article here: http://rt.com/business/cyprus-crisis-bailout-deposit-631/

The ‘Troika’ of creditors have agreed the final deposit levy on Cypriot accounts will be 47.5 percent for shareholders, bondholders, and depositors with more than 100,000 euro in the two largest banks.

Here's a chart of who lost money in the big Cyprus bank bail-in.  The three main groups I focus on are the people of cyprus (red), the russian mobsters (orange), and the eurozone banks (black).  The data is quarterly, so all I get is a 3-month granularity, so I'm not certain when exactly the losses were recorded for the bail-in.  The data is from the ECB Statistical Data Warehouse - the time series are most likely named by a committee of German software engineers (they have names like BSI.Q.CY.N.A.L20.A.1.U5.1000.Z01.E, which makes sense if you are a total SDW geek but are incomprehensible to normal people) but its a great source, assuming the source nation can refrain from lying - say the way Spain does about its property values.

Anyhow:

So People of Cyprus look to have dropped 10 billion euros, the russian mobsters perhaps 9 billion, and the eurozone banks - from 2-5 billion, depending on whether they got out prior to the gate coming down in Feb 2013.  My money is on the 2 billion euro number.  The fun bit for me is just how heavily the eurozone banks were in Cyprus in Oct 2011 when the 53% haircut was announced on Greek sovereign debt - which was the single cause of the Cyprus banking problem.  Had the bail-ins happened at that moment (and the impact on the Cyprus banks was most definitely known to regulators at that time), the German/French banks would have been out perhaps 10 billion euros, and they would have been tied for the top slot of the biggest losers in the bail-in.

Amazingly, wait a year, give the eurozone banks time to pull out - which they did - and the People of Cyprus and the Russian Mobsters are the ones picking up the tab instead.

What's more, had the Greek situation been resolved earlier - say a year earlier - those eurozone bank losses would have been more on the order of 15-30 billion euros.

Isn't it interesting that Draghi waited to give the Central Bank of Cyprus a call in 2013 once the eurozone banks had reduced their exposure down to less than 10 billion euros?

MFI: ECB-speak for "bank" (Monetary Financial Institution)

Non-MFI: companies & households

Other EZ: eurozone depositors, but outside the reporting area (i.e. a non-cyprus eurozone depositor)

Outside EZ: external to the eurozone (i.e. russian mobsters)

Domestic: Cyprus

Impacts

And now, the impact from the bail-in.  Note the knee in the curves was about the time of the Greek haircut - October 2012.  That's when the folks in banking on the island realized TSHTF, and cut off finanacing to the economy.  Credit "growth" of -25% per year is...horribly deflationary.

GDP drop is 8% PA, for those who are counting.

Conclusion: BAIL INS ARE DEFLATIONARY.  They are even MORE deflationary if you give a free pass to some participants who might be subject to bail-ins by prolonging the agony until they have time to pull out.

And they are the model going forward.

1 Comment

nelly2413's picture
nelly2413 (not verified)
G20 bail in plans

And they are the model going forward? Yes

The European Union, the UK, the USA, Canada, and now Australia and New Zealand, have all begun implementing new wealth confiscation (bail in) schemes

See G20 bail in plans here:

http://barnabyisright.com/2013/07/14/timeline-for-bail-in-of-g20-banking...

 

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