A country that’s been in the news a lot lately is Cyprus.
The banks in Cyprus became bloated then insolvent as their investments in Greece government bonds went bad.
The financial sector needed a bailout but the bailout needed was more than the Cyprus economy could fund so they went to the EU (aka Germany).
The banks went on a “bank holiday”.
Germany had already gone through all this with Greece and so, no doubt, wasn’t a fan of the idea of now bailing out Cyprus and so insisted there should be a “bail-in” procedure.
Suddenly people in Cyprus, who thought their money was insured, found out they would be paying 6.7% of their savings into a so-called “bail-in” fund, and people with more money in their accounts would be paying 9.9%.
Obviously, this was not well received by the people of Cyprus. The people started to raise hell and the politicians were too scared to pass the plan.
There was panic throughout the EU – people wondered if Cyprus would cause the economic collapse of all of Europe but then a new plan was thought up and passed. The EU was a happy place again but there was one small problem – the people of Cyprus had now seen the writing on the wall – their money wasn’t safe.
The article Cyprus banks reopen, cash restrictions cause anxiety is what happened yesterday, as the banks were finally reopened after being closed for a week.
“The government has imposed a daily limit on how much people can withdraw to stop a run on its banks — the first such action in the 14-year history of the euro currency. Cypriots took the measure in their stride, aware that with their economy teetering on the edge of collapse, any undue panic would make the situation worse.“
Can you imagine the government telling you how much money you could access each day? Ever wonder if this could happen in Canada?
The article Relax Canadians: no risk of Cyprus-like attack on bank deposits here doesn’t think it can.
“The reason we can be so sanguine? The numbers just don’t add up for such a drastic attack on depositors occurring, short of some kind of economic cataclysm.”
Yet, if that’s true, then why does the Canada Economic Action Plan for 2013 have a section dealing with “Bail-In” procedures?
“The Government [of Canada] proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.
“In case you are unfamiliar with bank parlance, deposits are not “assets” they are “liabilities”. A plan that would turn “certain bank liabilities” into regulatory capital is a plan to confiscate deposits.”
I would suggest that, in addition to savings in the banks, everyone have savings outside the banks. It doesn’t have to be much but, ignoring the idea of a banking collapse, even if a bank’s ATM’s were to go down on a weekend and, you couldn’t get access to cash, you won’t be a victim like the people of Cyprus were.