jueves, 18 de abril de 2013

Not too small to fail...

The Troika's agreement with Cyprus ended up respecting the 100% government guarantee on deposits of up to €100,000. Larger depositors and bondholders weren't so lucky: their losses will depend on the bank in which they have their money. Estimates put the losses at 60% if they were in Cyprus's second largest bank, Laiki.

The cost of the bailout to the Cypriot Government keep rising. When the terms of the deal to access €10 billion was agreed with the Troika, Cyprus's contribution was estimated at about €7 billion. Now, it's up to €13 billion. The cost of the rescue today (estimated at €23 billion) is larger than the Cypriot economy.

There are banks that are too big too fail, but they're not in Cyprus. Laiki Bank was a big player in Cyprus but not in the international financial system. Cyprus is a small country. Thus, for the first time in the history of the rescue packages cobbled together in the ongoing European crisis, "large" depositors and bondholders will share the cost of the bailout with taxpayers.

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