UBS: Monetary Unions Die Because Of Bank Runs

cyprus laiki bankA man tries to look inside a branch of Laiki Bank a few hours before the reopening of the banks on the island in Nicosia March 28, 2013.

Banks in Cyprus reopened this morning for the first time since March 16.

Some feared that Cypriots would be crowded around these banks in there efforts to withdraw as much cash as possible.

However, the reopenings have been orderly so far.

UBS Senior Economist Paul Donovan warns that a bank run in Cyprus would be bad news.

“Monetary unions die because of bank runs,” he writes. “The beeping heard from Cyprus is the sound of a monetary union on a life support system.”

“It is however too simplistic to say that capital controls mean Cyprus has left the Euro – the ECB is still prepared to transmit money to Cyprus – it is still in.”

It’s possible that today’s calm is due to capital controls.  Specifically, depositors are limited to withdrawing 300 euros per day.

These controls will be in place for seven days.

Read Donovan’s daily research round-up at

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.