Europe Rescinds Bank Deposit Insurance In Cyprus, While the FDIC Had Moved To Minimize Deposit Insurance Exposure

Bank run 1933What happens when you can’t trust your bank deposits are safe?   Did the European Central Bank destroy trust in Cyprus?  (see my prior postThe European Central Bank clowns and EU politicians are now backpedaling, but once the trust cat is out of the bag, it can’t be put back in.    Bank deposit haircuts of 6.75% and 9.9% in Cyprus bank deposits would be reduced by “according to the WSJ, … under 5% for deposits under €100K, under 10% for deposits between €100 and €500K, and over 13% for deposits greater than half a million.

Would you or a rational person leave his deposits in a bank which reduced their value once and promised not to do it again?   The ECB has lost trust that the ECB would protect deposits in insured banks under its control.   Without trust, a bank is a threat, not a safe place for your cash.

Curiously, the FDIC lowered its backing of publicly owned bank deposits.  For your city, town, village, school district, other taxing district:  The US FDIC has revised its rules and isn’t insuring public entity deposits exceeding $250,000.00 in all accounts aggregated together.    The FDIC insures your bank deposits, but it is very under-capitalized.  The FDIC “is mandated by law to keep a balance equivalent to 1.15% of insured deposits.  As of September 30, 2012, total deposits at FDIC-insured institutions totaled roughly $10.54 trillion, although not all deposits are insured.”     The FDIC  “in addition to the $18 billion in the DIF as of June, 2010; the FDIC has $19 billion of cash and U.S. Treasury securities held as of June, 2010 and has the ability to borrow up to $500 billion from the Treasury.”    Or, the FDIC has 0.2% total deposited cash available to cover bank losses, without borrowing from the Treasury or 5% available to cover losses, if it fully borrows from the Treasury.

Now connecting the dots from Europe with Cyprus to the FDIC in the USA:   Cyprus banks were capitalized at only a 5% level and that was insufficient to fund withdrawals and the ECB was forced to transfer funds to cover withdrawals in Cyprus, hence the crisis for Cyprus and the rescinding of deposit insurance by the ECB.   Has the FDIC rescinded its insurance over $250,000.00 to public entities because it expects that it will be limited by its available assets equivalent to 5% of deposited funds in a future run on US banks?    Has the FDIC has “wisely” restricted its liability to public entities, such as cities, towns, villages, school districts, etc?

Will the Euro contagion spread to the the US?  Will the EU governments and banks be trusted further?  What happens if your city’s, town’s, school district’s accounts receive a haircut to $250,000.00?    Would the FDIC, then, also restrict your personal bank withdrawals below a certain amount?   Can your US bank deposits, the FDIC or US government be trusted?

Trust in the ECB?   Trust in Merkel?  Trust in Barack?  Trust in Bernanke? Trust in your MSM?  Or, do not trust, protect?

5 Responses

  1. Tallyman

    Most European banks have a 7% or less capitalization. That means it has only 7% or less of deposit totals available to pay off any bank runs. Cyprus has 30 billion euros in insured (under 100k euros) deposits and 38 billion euros in uninsured deposits (over 100k euros). How many of the 38 billion uninsured deposits have to be withdrawn to exceed the 7% or less capitalization of the Cypriot banks. When the Cypriot banks re-open, they will quickly run out of capital to pay withdrawals and the European Central Bank must step in and send more cash. Or, will they? Or is this a Lehman style take down by JPM of European banks?

    Or, is it a political power play by Russia for gas drilling rights and a warm weather port. Enjoy Russians acting as armed Americans.

  2. Igor

    FWIW, I checked the spot market price of Gold over the weekend… Any guesses as to what it did??

    *snort* Idiots.

    I’m sure glad I live in a great country, eh? Our Gubmint would never do that, right?

  3. RightSide

    Without a doubt the story of the day! The implications of this confiscation of savings in Cyprus has ominous overtones as you rightly state. Should the “wealthy”, and that could mean anyone with 100K or more in savings, just have 10% of their private account taken by the government without even a “how do you do” how long will it be before there are bank runs? This is a very bad precedent..

    • Igor

      How long? The ATMs on the island were run out of cash right quick on Sunday. Well, except for the 6.75/9.9 percent of everybody’s account, that is…

      • RightSide

        I knew the ATM’s were drained in Cyprus. I guess my implication, following the post’s lead, was not strong enough to suggest there will be bank runs here after our government follows suit. How else will they pay for that 62% INCREASE in government spending? I mean the powers to be need backup dog walkers and an increased calligrapher staff to handle the invites to the Illuminati?!

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