Bill Roper (billroper) wrote,
Bill Roper

Watch Out for Falling Banks

Via Instapundit, it appears that the stupid is in full swing over in the European Union. The EU has gone to bail out the banks in Cyprus. And it turns out that the deposit insurance is worth less than you might have thought. 6.75% less, to be exact. If you had insured deposits in the Bank of Cyprus, they are going to take 6.75% of your account away from you. If you had uninsured money, they're going to take 9.9% of the balance.

Now for the uninsured money, that's certainly better than losing, say, all of it. But for the insured money, it appears that this is some new meaning of insurance, more akin to the fellow who is looking for the protection money from the small businesses.

And since interest rates have been hanging near nominal zero for a long time, this means that money in your mattress was worth 6.75% more than money in the bank.

As several different commenters have noticed, that's the recipe for triggering a lot of runs on weak banks.

And runs on weak banks are exactly what you want if you're the European Union, right?

Tags: economics, musings

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