Cyprus Reaction

There has been a lot of negative comment about the Cyprus deal. That is understandable: you can reasonably argue that imagesit will produce crippling austerity; that it is ridden with moral hazard; that it will create a bank run across most of Southern Europe. But what you can’t argue is that it was unexpected.

Too understand the deal in-case If you are in Cyprus :
* You can put money into your bank, but you can’t get it out again. At least you can, through ATMs, but only in very small amounts.
* If you have money on deposit, you can’t take the money out and close the account. And if it’s a time deposit, when it reaches the end of its life, you can’t have the money to spend. You have to roll it over into a new deposit. Continue reading “Cyprus Reaction”

Bank Runs and the Euro Crisis :

BANK runs don’t always involve small depositors queuing round the block. As we saw in 2008, institutions can withdraw

their money with devastating effect.

US money market funds are exiting the euro zone in what can only be described as a stampede. The rating agency Fitch says that the funds’ exposure to euro zone banks has dropped by 33% since May this year, and is now 78% down on its May 2011level. (French exposure is down 88% since May 2011.) Just over 8% of all their assets are now in the euro zone, compared with nearly 40% in 2009.

Britain, though not in the euro zone, has not been spared in the rush. Money market exposure is down 23% since May 2012 and 56% down on May 2011. Luckily, few banks Continue reading “Bank Runs and the Euro Crisis :”