If the raid on Cypriot depositors and subsequent bank run could happen in Cyprus, it could happen in the rest of Europe, as demonstrated. If it can happen in Europe, it can also happen in America. In Cyprus’ case, it will take generations to recover.
The euro zone’s messy bailout of Cyprus caused a mini-run on banks in many of the currency union’s 17 members in April, exacerbating the decline in lending to the real economy, data from the European Central Bank showed Wednesday.
Although European officials hastily abandoned original plans to impose losses even on insured depositors, and rushed to stress that Cyprus’s problems were unique, savers in other countries, especially in those with stressed banking sectors, appear to have feared that their savings could face similar treatment.
The ECB said that the level of private bank deposits in most countries in the euro zone fell in April, although much of the money appeared to find its way to banks elsewhere in the region. On aggregate, household deposits rose by 10 billion euros on the month, extending the trend of recent months.
The country most affected was inevitably Cyprus itself, where private deposits fell by EUR3.2 billion ($4.11 billion), or 7.3%, in a single month to EUR41.32 billion. This figure reflects only actual deposit flight, as savers and businesses tried to get their hands on as much cash as possible under the capital controls imposed after the bail-out was agreed on. It doesn’t include the write-downs that will be imposed on uninsured deposits in the system, a process that is still continuing.
The impact was also felt strongly in Greece, where private deposits fell EUR2.8 billion, or 1.6%, on the month. They are still nearly 10% up from their low point in June last year, however, reflecting a gradual return in confidence since the second restructuring of the country’s sovereign debt and the accompanying recapitalization of its largest banks.
The biggest absolute drop was in Spain, where deposits fell by over EUR23 billion, or 1.5%, to their lowest level since October. Spain’s banks, like Cyprus’s, are big recipients of bail-out funds, and the aid received has still not entirely restored confidence in the sector.
Offsetting those developments, banks in Germany, Belgium, Austria, Estonia, Slovakia and, most of all, France all registered inflows in deposits, in line with their recent trend.
Full article: ECB Says Cyprus Bailout Triggered Mini-Bank Run (NASDAQ)