Cyprus Banks Will Stay Closed Until Thursday (Mar 2013)

euro_crisis

Source: BBC News – Cyprus banks will stay closed until Thursday

Notable excerpts:

Banks in Cyprus will remain closed until at least Thursday while talks continue over controversial plans to put a levy on savers’ deposits.

The news that bank accounts face a one-off tax to help fund the country’s bailout saw depositors rush to cash machines, which soon ran out of funds.

Politicians want to finalise the bailout terms before banks re-open, as fears mount of a bank run.

Cyprus’s banks were closed on Monday for a Bank Holiday, and the country’s central bank said they would now remain shut until Thursday at least.

On Saturday, the government, the European Union and International Monetary Fund agreed an outline deal for a levy on bank deposits in return for a bailout worth 10bn euros ($13bn; £8.6bn).

Some investors think the Cyprus plan could prompt depositors elsewhere, particularly in Greece, Portugal, Ireland, Italy, Greece and Spain, to withdraw their funds.

“The unprecedented move is an extreme measure and in our view, it will spread some panic… we cannot rule out some capital outflows,” said Annalisa Piazza of Newedge Strategy.

But most investors thought the falls would not last long.

Kevin Lilley, European equities fund manager at Old Mutual Asset Management, said he was sitting tight: “I am not doing anything about it. My initial thoughts are that this is a circumstance that is peculiar to Cyprus.”

He added that if he had surplus cash, he would probably be taking advantage of the price falls and buying.

A number of other leading fund managers said they, too, were not changing their investment strategy.

David Cumming of Standard Life told BBC News he thought the wider impact would be limited. “I don’t think it will have a lasting impact, I think it’s an excuse for a correction after a strong run-up.”

He said people trusted the EU’s mechanisms for maintaining stability in the eurozone: “I don’t see a destabilisation of bank deposits across Europe. I don’t see any impact for more than a few days in the market.”

The European Central Bank board member, Joerg Asmussen, also said he did not think Cyprus’s problems would spread to other eurozone countries: “I do believe that the situation of Cyprus and the Cypriot banking sector is indeed unique.”

This is the first time the 17-nation eurozone has seen a country dip into people’s savings to finance a bailout.

Under the one-off levy, bank customers with less than 100,000 euros would have to pay 6.75%, while those with more than 100,000 euros would pay 9.9%.

Following eurozone finance ministers’ negotiations last week, Cyprus became the fifth euro-area country to get a bailout to save its banks, which suffered significant losses because of their exposure to Greek debt.

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