![\"The](\"https:\/\/i0.wp.com\/www.dougsbriefcase.com\/blog\/wp-content\/uploads\/2013\/07\/photo-credit-CNNMoney.jpg\")
<\/a>The Cyprus \u201cbail-in\u201d is no more pop\u00adu\u00adlar today than when it was hatched last spring. [Cred\u00adit: CNNMoney.com]<\/p><\/div>You may remem\u00adber Cyprus, the Mediter\u00adranean island that grabbed inter\u00adna\u00adtion\u00adal head\u00adlines last March when its gov\u00adern\u00adment was com\u00adpelled by Euro\u00adpean author\u00adi\u00adties to seize mon\u00adey that indi\u00advid\u00adu\u00adals and busi\u00adness\u00ades had deposit\u00aded in the country\u2019s two largest banks.\n
The \u201cbail-in\u201d of Cypri\u00adot banks, so called because it requires peo\u00adple who have deposit\u00aded their mon\u00adey in fail\u00ading banks to help save those banks by for\u00adfeit\u00ading some of their deposits<\/a>,<\/span> is a por\u00adtent of bank res\u00adcues to come. In addi\u00adtion to con\u00adfis\u00adcat\u00ading siz\u00adable chunks of deposits from accounts with large bal\u00adances, the gov\u00adern\u00adment imposed strict con\u00addi\u00adtions on remain\u00ading deposits, regard\u00adless of size.<\/p>\n So how is that work\u00ading out?<\/p>\n Not so well, it seems. In a let\u00adter to the Troi\u00adka (a group that orga\u00adnized and helped finance the bailout, com\u00adpris\u00ading the Euro\u00adpean Union (EU<\/span>), the Euro\u00adpean Cen\u00adtral Bank (ECB<\/span>) and the Inter\u00adna\u00adtion\u00adal Mon\u00ade\u00adtary Fund (IMF<\/span>)), which insist\u00aded on the bail-in as a con\u00addi\u00adtion for throw\u00ading a life\u00adline to the gov\u00adern\u00adment and to what is now its largest bank, Cypri\u00adot Pres\u00adi\u00addent Nicos Anas\u00adtasi\u00adades<\/a> wrote:<\/p>\n \u201c<\/span>Arti\u00adfi\u00adcial mea\u00adsures such as cap\u00adi\u00adtal restric\u00adtions may seem to pre\u00advent a bank run in the short term but will only aggra\u00advate the depos\u00adi\u00adtors the longer they per\u00adsist. Rather than cre\u00adat\u00ading con\u00adfi\u00addence in the bank\u00ading sys\u00adtem they are erod\u00ading it by the day.\u201d<\/p><\/blockquote>\n It\u2019s not hard to under\u00adstand why such \u201ccap\u00adi\u00adtal restric\u00adtions\u201d \u2013 gov\u00adern\u00adment rules that pre\u00advent depos\u00adi\u00adtors from exer\u00adcis\u00ading full con\u00adtrol over their own mon\u00adey \u2014 might erode people\u2019s con\u00adfi\u00addence in their banks. Imag\u00adine being told that you couldn\u2019t close your sav\u00adings or check\u00ading account. Or open a new one. Or with\u00addraw more than a fixed amount. Or use the funds to pay a cred\u00adit card bill. Or a med\u00adical bill.<\/p>\n A series of gov\u00adern\u00adment decrees <\/a>(there had been 16 as of June 25) estab\u00adlished these restric\u00adtions. In the near\u00adly four months that have passed since the Troi\u00adka insist\u00aded on these restric\u00adtions, some have been relaxed. Oth\u00aders remain in place. They\u2019ve reduced strains on banks but haven\u2019t restored them to health. The Bank of Cyprus remains hob\u00adbled by debt and depos\u00adi\u00adtors have found cre\u00adative ways to dis\u00adgorge their mon\u00adey. Total deposits <\/a>had declined to 56 bil\u00adlion euro by the end of May, com\u00adpared with 72 bil\u00adlion euro a year earlier.<\/p>\n As in oth\u00ader Euro\u00adpean nations and the U.S., the banks\u2019 sick\u00adness has vis\u00adit\u00aded grave con\u00adse\u00adquences on aver\u00adage Cypri\u00adots. Peo\u00adple are out of work<\/a>. Busi\u00adness\u00ades are fail\u00ading. <\/a>The econ\u00ado\u00admy is shrink\u00ading. <\/a> Polit\u00adi\u00adcal insta\u00adbil\u00adi\u00adty can\u2019t be far behind. In addi\u00adtion to his let\u00adter to the troi\u00adka last month, Anas\u00adtasi\u00adades met with ECB<\/span> Pres\u00adi\u00addent Mario Draghi, although details of the meet\u00ading were not dis\u00adclosed<\/a>.<\/p>\n In the mean\u00adtime, the gov\u00adern\u00adment is des\u00adper\u00adate\u00adly seek\u00ading a sil\u00adver bul\u00adlet, some\u00adthing to turn the econ\u00ado\u00admy around. Tourism<\/a> is a peren\u00adni\u00adal source of hope. Anoth\u00ader are the gas deposits<\/a> off the island\u2019s south\u00adern shore. The val\u00adue of these deposits and the fea\u00adsi\u00adbil\u00adi\u00adty of extract\u00ading suf\u00adfi\u00adcient amounts of gas to pro\u00advide a mean\u00ading\u00adful boost to the country\u2019s GDP<\/span> remain uncer\u00adtain. There is even spec\u00adu\u00adla\u00adtion about reunit\u00ading the island <\/a>under a sin\u00adgle gov\u00adern\u00adment. <\/b> Turks have con\u00adtrolled the north\u00adern part of the island since 1974. Now that the cur\u00adrent cri\u00adsis is dra\u00admat\u00adi\u00adcal\u00adly reduc\u00ading liv\u00ading stan\u00addards in the Greek-con\u00adtrolled south, such reuni\u00adfi\u00adca\u00adtion, though still far-fetched, may become more feasible.<\/b><\/p>\n None of that, how\u00adev\u00ader, does much for Cypri\u00adots today. Their for\u00admer\u00adly boom\u00ading econ\u00ado\u00admy, bur\u00adgeon\u00ading real estate mar\u00adket, and healthy bank\u00ading sec\u00adtor boost\u00aded by for\u00adeign (pre\u00addom\u00adi\u00adnant\u00adly Russ\u00adian) depos\u00adi\u00adtors are now a dis\u00adtant mem\u00ado\u00adry. Shock\u00adwaves from the Wall Street epi\u00adcen\u00adter of the glob\u00adal finan\u00adcial cri\u00adsis rat\u00adtled Cyprus to its foun\u00adda\u00adtions. Like oth\u00ader nations on the Euro\u00adpean periph\u00adery, its banks are wob\u00adbly, its gov\u00adern\u00adment entan\u00adgled in debt, its econ\u00ado\u00admy reeling.<\/b><\/p>\n Mean\u00adwhile, our biggest banks are doing just fine, thank you. <\/b>But\u00adtressed by cheap access to cred\u00adit and for\u00adti\u00adfied by fees, includ\u00ading those it earns as a \u201cpri\u00adma\u00adry deal\u00ader\u201d for the Fed\u00ader\u00adal Reserve in its month\u00adly $85 bil\u00adlion pur\u00adchas\u00ades of gov\u00adern\u00adment bonds and mort\u00adgage-backed secu\u00adri\u00adties, JPMor\u00adgan Chase report\u00aded strong earn\u00adings <\/a>last week. The earn\u00adings were bol\u00adstered by the fact that the mega-bank reduced the amount of cap\u00adi\u00adtal it sets aside against future losses.<\/p>\n Dur\u00ading the earn\u00adings call, bank offi\u00adcials were pep\u00adpered with ques\u00adtions about their abil\u00adi\u00adty to com\u00adply with new fed\u00ader\u00adal rules <\/a>that would require too-big-to-fail banks to hold big\u00adger cap\u00adi\u00adtal cush\u00adions. The pro\u00adposed rules would require \u201cbank hold\u00ading com\u00adpa\u00adnies\u201d (the par\u00adent com\u00adpa\u00adnies of large banks) to main\u00adtain cap\u00adi\u00adtal reserves of at least 5 per\u00adcent; their sub\u00adsidiaries who accept deposits insured by the FDIC<\/span> would have to hold equi\u00adty equal to 6 per\u00adcent. That would mean that the hold\u00ading com\u00adpa\u00adny would only be able to bor\u00adrow $19 for every $1 in equi\u00adty. The bank\u2019s offi\u00adcials wouldn\u2019t dis\u00adclose its cur\u00adrent lever\u00adage ratios<\/a>,<\/span> but acknowl\u00adedged that nei\u00adther its hold\u00ading com\u00adpa\u00adny nor its sub\u00adsidiaries cur\u00adrent\u00adly meet the pro\u00adposed standards.<\/p>\n Bank\u00ading lob\u00adby\u00adists<\/a> oppose those stan\u00addards. They argue that soci\u00adety will be worse off if banks are forced to bet\u00adter pre\u00adpare for future down\u00adturns by hold\u00ading more cap\u00adi\u00adtal. They will spend a good deal of mon\u00adey and ener\u00adgy over the next few months in an effort to per\u00adsuade reg\u00adu\u00adla\u00adtors to dial back the requirements.<\/p>\n I wouldn\u2019t pre\u00adsume to com\u00adment on the details of this pro\u00adpos\u00adal and I place lit\u00adtle faith in the capac\u00adi\u00adty of scle\u00adrot\u00adic bureau\u00adcra\u00adcies to keep banks secure. But the results of the last finan\u00adcial melt\u00addown are last\u00ading and pro\u00adfound. The gov\u00adern\u00adment has resort\u00aded to extra\u00ador\u00addi\u00adnary mea\u00adsures \u2014 bailout funds, stim\u00adu\u00adlus bills, record deficits, zero inter\u00adest rates, and wave after wave of \u201cquan\u00adti\u00adta\u00adtive eas\u00ading\u201d \u2014 to coax the econ\u00ado\u00admy back to recov\u00adery. The results are unim\u00adpres\u00adsive. And we are the lucky ones. Europe is back in reces\u00adsion, its periph\u00adery reel\u00ading from cri\u00adsis to cri\u00adsis, eco\u00adnom\u00adic hard\u00adship fuels tur\u00admoil through\u00adout North Africa and the Mid\u00addle East, and devel\u00adop\u00ading coun\u00adtries are whip\u00adsawed by cur\u00adren\u00adcy fluctuations.<\/p>\n Bank fail\u00adures are at the root of these dis\u00adrup\u00adtions. Too-big-to-fail US<\/span> banks, which have grown big\u00adger since the 2008 melt\u00addown, are in rea\u00adson\u00adably good health. Requir\u00ading them to hold more cap\u00adi\u00adtal to make anoth\u00ader melt\u00addown less like\u00adly seems like sen\u00adsi\u00adble policy.<\/p>\n","protected":false},"excerpt":{"rendered":" You may remem\u00adber Cyprus, the Mediter\u00adranean island that grabbed inter\u00adna\u00adtion\u00adal head\u00adlines last March when its gov\u00adern\u00adment was com\u00adpelled by Euro\u00adpean author\u00adi\u00adties to seize mon\u00adey that indi\u00advid\u00adu\u00adals and busi\u00adness\u00ades had deposit\u00aded in the country\u2019s two largest banks. The \u201cbail-in\u201d of Cypri\u00adot \u2026 Con\u00adtin\u00adue read\u00ading