Cyprus banks may cut 40% from some deposits

The country probably won't declare a national bankruptcy, but major banking customers are still taking a hit.

By Kim Peterson Mar 27, 2013 12:53PM
Cypriots protest against the bailout package outside the presidential palace in capital Nicosia, on Tuesday (© Petros Giannakouris/AP)A new, $13 billion rescue package is pulling Cyprus away from a national bankruptcy. But the country is still in chaos, with thousands of people protesting and large bank depositors on pins and needles.

The island country's banks have been closed for nearly two weeks and are scheduled to open Thursday. Officials are expecting customers to flood the banks when they open and withdraw as much money as they can. And that could plunge the economy into further darkness.

Officials are trying to find ways to stop people from withdrawing large sums of money and leaving the country.

Here are six ways that Cyprus residents are getting hurt in the country's economic crisis:

Frozen accounts. Anyone with more than $128,000 in deposits will see their accounts frozen.

A 40% 'haircut.' Those large depositors could lose 40% of their money to banks that need the cash. In exchange, they will get shares in a recapitalized bank, The New York Times reports.

Businesses are suffering. The president of the Cyprus Supermarkets Association told Reuters that consumer confidence has "hit the floor."

Banks folding. The country's No. 2 lender, Cyprus Popular Bank, will be shut down, and anyone with less than $128,000 deposited will see their money moved to the Bank of Cyprus. Some experts say the Bank of Cyprus will be insolvent within a year.

Retailers out of supplies. With the banks closed, retailers and other businesses have not been able to pay vendors or employees, and are running out of inventory.

Lost jobs. Cyprus already has a 14% unemployment rate. With its banking industry essentially collapsing, former bank employees will be out of work and adding to the unemployed count.

Government officials really want to keep all the foreign money within their banking systems for now. Russians, Greeks and other foreign depositors have long viewed Cyprus as an economic safe haven, owning more than 30% of the long-term deposits in the Bank of Cyprus. Now, those foreigners are anxious to get their money out of the country.

The government needs that money to stabilize the economy, so it's freezing the accounts. That's leading to threats from Russia; Finance Minister Anton Siluanov is implying that Russia may not restructure or extend the $3.2 billion loan the country made to Cyprus in 2011.

More on moneyNOW


7Comments
Mar 27, 2013 3:33PM
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The thing that surprises me most is that no one has made a comment about this.  If this occurs without a coupe, the rest of Europe may decide to follow suit.  And what stops the current Administration from doing this when it realizes that all it's tax hikes and "penalties" cannot pay for the outrageous spending?
Mar 27, 2013 7:22PM
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you can bet that halfbreed in washington and all his crooked politicans coharts or watching and figuring out if they can get away with doing what cyprus is doing  , why do you think mandatory bank deposits of social security and most all pension checks  they have the  they money and give you what they want to. Wake up people  be ready .
Mar 27, 2013 6:30PM
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Watch out America. Guess who is next.  For a President that has never worked a day in his life. Now running the Country. Into the ground taking with it everyone. Your assets are target.
Mar 27, 2013 5:07PM
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its just a matter of time thanks obama

 

Mar 27, 2013 8:51PM
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Russians.  This is what happens when you give it nice safe Communism to Capitalism.   Welcome to the New World.
Mar 31, 2013 11:10AM
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It looks like the Depression all over.  Look out America!  This can happen to us.
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