Cyprus is a small country which for the size of its economy has a lot of bank deposit liabilities or which a large part, according to the media, are held by wealthy Russians.
Cyprus, like may countries in the Eurozone is having fiscal problems. IMF refused a bailout and instead suggested a seizure of bank deposits – 6.75% for everyone and 9.9% for depositors unfortunate to have more that 1000,000 Euros.
Over the past few years I have read a thousand articles about bank bailouts. The people complaining about what happened in the U.S. with TARP and the Fed’s liquidity interventions missed the point that the bailouts we had here were of depositors. The other liability holders were those who owned bank equity (stock) and they took heavy losses.
When banks open in Europe on Monday and in Cyprus on Tuesday, depositors in all Eurozone banks will face the new reality of precedent being established for seizure of deposits in countries with fiscal problems.