How to cause a run on the banks

[BlasterBates]

The reason they did this was because of the amount of foreign money lying around in Cypriot bank accounts.

Whether you pay extra few grand in tax on some new property tax or on your bank account doesn´t make any difference you still pay the money. This way the average Cypriot pays less because 40%-60% of the tax is paid by foreigners. Cyprus is actually a tax haven. Not only that but most Cypriots will be paying less tax, because the tax avoiders will generally have a lot more in their accounts and pay the full 10% on it, which is why they might actually shoulder over half of the tax.

If the government had put the tax on other things the average Cypriot would have to fork up double the amount, maybe even more, given the weighting.

Not as stupid as it first appears.

[Doggy Styles]

Yes but we all pay tax on interest on savings, and the same applies. What if you hold some money in your account for someone else, earn some interest, pay some tax - does the other person get the interest and have to pay the tax? What if you take out a mortgage and temporarily have a large amount of cash in your account? You could earn some interest, and pay some tax on it.

This is more extreme, but generally speaking the interest on savings minus tax doesn't keep up with inflation anyway, at least not in a regular deposit account, so this is no different to what has been happening to UK savers for decades.

Surely it is very different.

People put money into bank accounts because they are not speculative investments - you don't lose your deposit. What has happened in Cyprus is a spectacular crossing of that Rubicon.

[VectraMan]

People put money into bank accounts because they are not speculative investments - you don't lose your deposit. What has happened in Cyprus is a spectacular crossing of that Rubicon.

The point I was making is that money in the bank goes down in real terms anyway. The difference here is that people are going to see that number decrease, whereas with inflation/QE, it's no so obvious that you've just been taxed.

[Mich the Tester]

Surely it is very different.

People put money into bank accounts because they are not speculative investments - you don't lose your deposit. What has happened in Cyprus is a spectacular crossing of that Rubicon.

Peston's take on this;

BBC News - Cyprus rescue breaks all the rules

a deal that might just be approved by the German parliament has resulted in serious collateral damage to the credibility of policymakers in the eurozone and the IMF.

The Cypriot deal sets back the cause of the new global rules for bringing order to banking systems when crisis hits. Apart from anything else, in other eurozone countries where banks are weak, it licenses runs on those banks, as and when a bailout looms.

[Ignis Fatuus]

Peston's take on this;

BBC News - Cyprus rescue breaks all the rules

Indeed. The EU may have opened a can of worms here. Deposit guarantees just became worthless everywhere as a tool for suppressing panic.

[Ignis Fatuus]

But - perhaps someone with a better memory can remind me - didn't Italy do something exactly like this some time ago? Possibly in the 1990s? From one Sunday night to Monday morning, 10% was taken from all Italian bank accounts. Not that politicians and men of respect would have had any advance knowledge of this coming.....

[Doggy Styles]

Who still wishes we'd joined the common currency?

[Mich the Tester]

Now the Russians are angry;

BBC News - Russian anger at Cyprus bailout levy

Time to build a fallout shelter in the garden? PANIC! PANIC!

[KentPhilip]

I bet you if you have a loan from a cypriot bank they didn't reduce that by 10%..

[d000hg]

I bet you if you have a loan from a cypriot bank they didn't reduce that by 10%..

Which part of "financial crisis" did you not understand?