Sucks to be from Cyprus

Boges · March 18, 2013

http://business.financialpost.com/2013/03/18/cyprus-tax-levy/

PARIS People with bank accounts in Cyprus were shocked Saturday to learn that as part of an agreement reached with international creditors the government has imposed a tax on all deposits to help bail out the nation and its banks. Heres a look at the tax, which can be as high as 9.9%, and the problems it may pose.

HEY, HOW CAN THEY DO THAT?

As one of 17 nations that use the euro currency, Cyprus can to raise or lower taxes whenever it wants. Early Saturday, it secured a (euro)10-billion (US$13-billion) bailout from its European partners and the International Monetary Fund to save the banking sector and avoid bankruptcy. In return, the island nation has imposed the new tax, among other moves. It isnt the first time that a eurozone nation has raised taxes to cope with mounting debt and to prop up struggling banks. Residents of Greece, Portugal and Ireland all bailout recipients have seen their tax bills skyrocket in recent years as those countries tried to reduce their debts. But Cyprus is charting new ground here, and there could be legal and political challenges.

AND HOW EXACTLY WILL IT WORK?

Banks have already acted to seal off the amount of the levy a 6.75% tax on deposits under (euro)100,000 and 9.9% on those above so depositors cant access it. Bank customers still can draw on the rest of their funds via ATM machines, although banks that usually open on Saturdays had limited hours. No international transfers will be able to go through until Tuesday, since Monday is a holiday. Cyprus parliament still needs to meet to pass the required legislation. The deal also needs the approval of several eurozone parliaments; its unclear how fast they can act and what will happen to bank deposits in the meantime.

I guess tough times lead to tough measures. I would want to riot if banks raided my accounts automatically taking a certain percentage to my savings but Canada isn't begging other countries for bailouts.

If these countries were more prudent about how they collected revenues and spent money these drastic measures may not have been necessary. It still sucks though.

GostHacked · March 18, 2013

Corrupt government spending needs to be addressed in all of these countries that are in financial problems. Taxing people's personal savings to help bail out the fat cats is appalling.

Essentially what you are seeing is what Celente calls a 'bank holiday'. Restricting access to ones own money is a very telling sign that your money is no longer safe in banks.

I've spent the last few years accumulating a decent savings, and I would be pissed if all my hard work only end up paying off some fat cat's idiocy. Taxing those savings account is outright theft.

Austerity is when people willingly make financial sacrifices for the greater good. What we are seeing here is not austerity, this is something a little more sinister.

eyeball · March 18, 2013

Isn't this more a case of it sucks to move your money to Cyprus? I've been given to understand that most of the money deposited in Cypriot banks "belongs" to the Russian Mafia.

What would suck about being from Cyprus is knowing your government has been allowing and encouraging this sort of thing.

Jerry J. Fortin · March 18, 2013

Corruption in Cyprus is not news worthy, until now. The haircut that depositors are about to take are a direct result of the EU and the IMF cracking down on money laundering, specifically that of Russian customers. Last year Russian customers deposited 119 billion and withdrew 129 billion from Cypriot banks. The bailout in Cyprus is to cover losses in the banking industry which had book value assets in excess of five times the entire economic output of the nation outside of the financial industry. This is the first of the visible BAILOUTS to come in the EU. So far the EU and the IMF have helped countries deal with their economic problems without the need for circumventing the intent of deposit insurance, things just changed.

The mere concept of taxing citizens savings through the financial system caused huge increases in ATM activities, and with the banks being closed there until Tuesday financial markets in Asia and Europe have taken big hits, now with New York opening the trend is extended to North American markets as well. Inside of the next twenty four hours literally trillions of dollars worth of transactions will take place as European depositors start taking money out of banks and start looking for other places to put it and hide it from the taxes that now being sought to coverup the biggest scandal the financial industry has ever seen.

Bank runs will begin in the rest of Europe by Wednesday having already been started in Cyprus on Tuesday morning. By Thursday even Asian banks begin taking hits and by close of business Thursday North America will see the DOW tumble. I don't think the spin doctors or the media can even begin to alter adverse impact of a bank run. European citizens now know that their savings form a cornerstone of the new financial bailout industry growing up in the smouldering ruins of European economic activity. The common citizen, once proudly part of a middle class, has been reduced to that of a serf, striped of rights and possessions to cover the losses of corporate and governmental greed. The shit is about to hit the fan folks.

eyeball · March 18, 2013

The shit is about to hit the fan folks.

Isn't the shit really only just threatening to blow back in the faces of the wealthy who hide or move money outside their countries of origin? This should be a bit of fresh air for ordinary Earthlings everywhere.

It's just a good thing there isn't a Bank of Mars.

Bonam · March 18, 2013

http://business.financialpost.com/2013/03/18/cyprus-tax-levy/

I guess tough times lead to tough measures. I would want to riot if banks raided my accounts automatically taking a certain percentage to my savings but Canada isn't begging other countries for bailouts.

If these countries were more prudent about how they collected revenues and spent money these drastic measures may not have been necessary. It still sucks though.

The measures aren't necessary. Let the stupid "too big to fail" banks freaking die already, they need to be destroyed not bailed out. Raiding people's savings to prop up the failing "banking sector" is an abomination. Of course, people will just take this lying down, as they have wholeheartedly swallowed the "too big to fail" BS and think that the world will end if a bank goes bankrupt, when in reality bankruptcy of failed businesses that made bad decisions is a key part of the free market process and only helps to rejuvenate the economy by replacing dying businesses with new ones.

TimG · March 18, 2013

I guess tough times lead to tough measures. I would want to riot if banks raided my accounts automatically taking a certain percentage to my savings but Canada isn't begging other countries for bailouts.

In Canada only the first 100K is guaranteed by the CDIC. This means that in the event of bank failure there would be a 100% 'tax' on savings greater than that amount so I really don't see why Cypriots are complaining; the alternative would let the banks go under and they lose 100% instead of 10%. Edited March 18, 2013 by TimG

TimG · March 18, 2013

Raiding people's savings to prop up the failing "banking sector" is an abomination.

I suggest you read the fine print provided by the CDIC or the FDIC in the US. No government or bank in any country has ever promised that all savings would be protected in the event of a bank failure. Edited March 18, 2013 by TimG

Boges · March 18, 2013

In Canada only the first 100K is guaranteed by the CDIC. This means that in the event of bank failure there would be a 100% 'tax' on savings greater than that amount so I really don't see why Cypriots are complaining; the alternative would let the banks go under and they lose 100% instead of 10%.

Yeah but they're losing like 6% under 100,000 Euros.

If one is fortunate enough to have $100,000 or more in savings, they are daft if they just have it sitting in a bank account. Wouldn't it be more prudent to have that money secured in a RRSP/GIC or something like that? Even a Mutual Fund.

That's assuming they have stuff like that in Cyprus. Now if Cyprus is also raiding people's retirement savings and investments, then that's horrible!

Edited March 18, 2013 by Boges

TimG · March 18, 2013

Wouldn't it be more prudent to have that money secured in a RRSP/GIC or something like that? Even a Mutual Fund.

GICs are savings accounts like any other and are not protected in case of bank failure. Any other investment vehicle comes the risk of capital loss so one would not automatically invest in them if one had more than 100K.

Yes the 6% for accounts under 100K sounds painful but is it really nothing more than 3 years of inflation if you keep your money in no-interest chequing accounts. Given the alternatives I think the Cypriots are getting a good deal.

I remember back in 2008 when many investors were shocked to find out that their money market funds never promised to preserve capital and were forced to absorb similar losses.

The biggest issue is optics - they should have excepted the smallest account holders.

Edited March 18, 2013 by TimG

Bonam · March 18, 2013

I suggest you read the fine print provided by the CDIC or the FDIC in the US. No government or bank in any country has ever promised that all savings would be protected in the event of a bank failure.

If the bank fails then the bank fails. And you get your deposit up to $100k (or whatever the insured amount is in a given country) protected. But if the bank doesn't fail but is just whining for bailouts, your deposit should be safe, not for the government and its cronies to raid whenever they feel like it.

Bonam · March 18, 2013

GICs are savings accounts like any other and are not protected in case of bank failure. Any other investment vehicle comes the risk of capital loss so one would not automatically invest in them if one had more than 100K.

And now savings accounts have a risk of capital loss too. Yay.

Yes the 6% for accounts under 100K sounds painful but is it really

nothing more than 3 years of inflation if you keep your money in

no-interest chequing accounts. Given the alternatives I think the

Cypriots are getting a good deal.

Someone randomly without warning takes 6% of your money and that to you is a good deal? And who keeps any substantial amount of money in a no interest chequing account? At most people keep a few thousand in those for day to day expenses and paying bills. This argument makes no sense anyway. Having 6% of your money stolen isn't a big deal cause you mighta lost it some other way too!

I remember back in 2008 when

many investors were shocked to find out that their money market funds

never promised to preserve capital and were forced to absorb similar

losses.

A money market fund is an investment and the relevant risks are made known. A chequing/savings account doesn't have fineprint that says "may be randomly raided by the government whenever it feels like it".

The biggest issue is optics - they should have excepted the smallest account holders.

No, they should have let the failing banks fail. If there was any insurance scheme the smaller deposit holders would be protected, and anything beyond that would be addressed in bankruptcy court.

Edited March 18, 2013 by Bonam

TimG · March 18, 2013

But if the bank doesn't fail but is just whining for bailouts, your deposit should be safe, not for the government and its cronies to raid whenever they feel like it.

Why should large depositors be treated differently from other bank creditors in event of a bailout? If taxpayers from other countries are footing the bill I don't see any justification for providing such protection. Edited March 18, 2013 by TimG

TimG · March 18, 2013

Someone randomly without warning takes 6% of your money and that to you is a good deal? And who keeps any substantial amount of money in a no interest chequing account?

You don't know this money is in chequing accounts. It could be in GICs or high interest savings. The press releases don't distinguish between the types of accounts.

No, they should have let the failing banks fail. If there was any insurance scheme the smaller deposit holders would be protected, and anything beyond that would be addressed in bankruptcy court.

Which is my point - losing 6% is a better deal than losing all. I am also assuming that Cyprus has no deposit insurance so there were no promises made to depositors. If Cypriot depositors were told that they had deposit insurance and now they have to pay this tax then they would be entitled to complain. Edited March 18, 2013 by TimG

Bonam · March 18, 2013

Why should large depositors be treated differently from other bank creditors in event of a bailout? If taxpayers from other countries are footing the bill I don't see any justification for providing such protection.

Taxpayers from other countries shouldn't be footing any bill, that's the whole point. The banks should be allowed to fail.

Bonam · March 18, 2013

You don't know this money is in chequing accounts. It could be in GICs or high interest savings. The press releases don't distinguishbetween the types of accounts.

Which is my point - losing 6% is a better deal than losing all.

You brought up the chequing accounts, I was responding.

I am also assuming that Cyprus has no deposit insurance so there were no promises made to depositors.

Why would you assume that? Cyprus like almost any moderately civilized country has deposit insurance:

http://www.centralbank.gov.cy/nqcontent.cfm?a_id=8158〈=en

GostHacked · March 18, 2013

I guess tough times lead to tough measures. I would want to riot if banks raided my accounts automatically taking a certain percentage to my savings but Canada isn't begging other countries for bailouts.

Canada was not begging for handouts, but some of our banks got some anyways. The money came from 3 different sources, two were Canadian (central bank and the CHMC i think) and the other was the US Federal Reserve.

Canuckistani · March 18, 2013

Taxpayers from other countries shouldn't be footing any bill, that's the whole point. The banks should be allowed to fail.

Maybe they could get away with that in Cyprus. If the US had done that with their banks, world credit would have frozen and goodbye economic activity. The banks should have been nationalized in the short term.

GostHacked · March 18, 2013

Taxpayers from other countries shouldn't be footing any bill, that's the whole point. The banks should be allowed to fail.

I could not agree more.

TimG · March 18, 2013

Why would you assume that? Cyprus like almost any moderately civilized country has deposit insurance:

.

The had something but there is a question about whether it could have afforded to honor its promises.

http://www.bbc.co.uk/news/world-europe-21817197

Didn't savers think they were protected?

To a degree, yes they did. The point is, the banks have not collapsed. This deal is aimed at saving them from collapse. Had they done so, then savers would have had their first 100,000 euros (£86,000) protected under the Cyprus Deposit Protection Scheme - assuming the scheme could have paid out all this compensation.

As it is, it is likely that some, but not all, of their savings will be lost to this levy in return for some shares.

.

The real issue is a concern that the large depositors are Russian mobsters.

Why the bank levy?

When countries get an international bailout, they are often expected to raise funds themselves, by raising taxes or selling state-owned assets.

The levy on bank deposits is playing the same role. It is intended to reduce the size of the bailout and therefore the amount of new debt Cyprus has to take on. But there is almost certainly a political aspect too. In the eurozone, there are concerns about money-laundering in Cyprus and the presence of large amounts of Russian-owned money in the banks. Germany is reputed to be especially unhappy about the idea of using taxpayers' money to rescue them.

Edited March 18, 2013 by TimG

Michael Hardner · March 18, 2013

Canada was not begging for handouts, but some of our banks got some anyways. The money came from 3 different sources, two were Canadian (central bank and the CHMC i think) and the other was the US Federal Reserve.

Source on this please. The Canadian Centre for Policy alternatives published a misleading article about a 'bailout' that failed to distinguish between government gifts, loans, or - as was the case - purchases of assets. That sparked a discussion on here at the time.

GostHacked · March 18, 2013

Source on this please. The Canadian Centre for Policy alternatives published a misleading article about a 'bailout' that failed to distinguish between government gifts, loans, or - as was the case - purchases of assets. That sparked a discussion on here at the time.

Yep cited here..... it was the bailout that was not a bailout.

http://www.cbc.ca/news/business/story/2012/04/30/bank-bailout-ccpa.html

Canada's biggest banks accepted tens of billions in government funds during the recession, according to a report released today by the Canadian Centre for Policy Alternatives.

Canada's banking system is often lauded for being one of the world's safest. But an analysis by CCPA senior economist David Macdonald concluded that Canada's major lenders were in a far worse position during the downturn than previously believed.

Macdonald examined data provided by the Canada Mortgage and Housing Corporation, the Office of the Superintendent of Financial Institutions and the big banks themselves for his report published Monday.

It says support for Canadian banks from various agencies reached $114 billion at its peak. That works out to $3,400 for every man, woman and child in Canada, and also to seven per cent of Canada's gross domestic product in 2009.

The figure is also 10 times the amount Canadian taxpayers spent on the auto industry in 2009.

"At some point during the crisis, three of Canada's banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company," Macdonald said.

"Without government supports to fall back on, Canadian banks would have been in serious trouble."