With Cypriot bank customers facing a loss of 10% of their deposit holdings, could the fiscally unsound contagion that’s plaguing the small Mediterranean island spread to larger European economies? Or even to the United States?
Cyprus is in a terrible financial bind. They’re upside down by about $25 billion, which is outrageous for such a tiny place. The island’s banks are insolvent. And you have the Europeans saying depositors will have to eat as much as 10% of the money they have in accounts.
Well, that’s caused an uproar. It would be like if FDIC protection disappeared over night and you were told the joke’s on you.
This is a unique situation that even involves Russia. That’s because Russian mobsters use Greek Cypriot banks. So they would also see part of their money wiped out — and Putin’s not too happy about that.
But the implications are far worse; the fear is that once people know a guarantee is not a guarantee, it undermines confidence. There’s concern that the lack of confidence could spread to wobbly economies like those in Spain and Italy and cause a big run on banks.
We’ll see how it plays out over the week. We are a big trading partner of Europe, so this could impact us. But rest assured, I see no circumstance where any depositor in this country would need to worry about their money on deposit here in the United States.
That still is safe!