It’s going to be a late night in Brussels, as Cyprus and its EU partners look for a deal that will allow Cyprus to raise enough money to keep its banks solvent.
Last weekend, the plan was to impose a one-off tax on all deposits that would be used to fund the banks, but that was shot down.
And so this recent week was spent looking for a possible solution. But after all this, it still looks like some kind of deposit tax is the best or only reasonable plan.
But there are still some extreme scenarios being talked about.
Nick Malkoutzis, the editor of Greek newspaper Ekathimerini tweets that an “unimaginable” solution is still being discussed.
The main question surrounds the future of the island’s largest lender, Bank of Cyprus. If unsecured deposits (above 100,000 euros) at all Cypriot banks are taxed then large savings at Bank of Cyprus are likely to be taxed between 20 and 25 per cent. If the levy is not imposed on deposits at other lenders, the haircut for Bank of Cyprus customers will be much larger.
The option of a full bail in of Bank of Cyprus depositors is still on the table. As with the Popular Bank of Cyprus (Laiki), which is to go through a resolution process, the full bail in option could lead to deposits above 100,000 euros being lost. The only compensation for unsecured depositors will be shares in the “good” bank that will be created by a possible merger between the “healthy” Laiki and Bank of Cyprus entities.
What’s wild is that a week ago, Cyprus probably could have passed a bill that taxed depositors above 100K at ~12-15%, while sparing insured depositors, and although that would have been painful, it would have been over.
Now we’re talking about capital controls and the threat of a complete wipeout of depositors.
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