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Stand and Deliver

When my dad wanted to underline something as especially true, he would use the phrase "you can take that to the bank." If someone wanted to underline the chances of something making money, they would say "as good as money in the bank". Both these phrases stem from the bank's reputation for safety.

In the good old days, banks were invented as a safe place for people to store their money. In return for their deposits, bankers paid a small return and leant out the cash responsibly to those who needed it in return for interest. Provided everyone didn't withdraw their deposits at once and provided the borrowers repaid the loans - everyone was happy.

Recent history has taught us that money in the bank is not as safe as we think. One could be forgiven for thinking that banks advertising in a local broadsheet are as good as the bank on the corner. After all, aren't deposits covered by a guarantee?

Depositors in the zombie banks from Cyprus anxiously await their fates. Anyone with a deposit of more than 100,000 Euros stands to lose up to 40% of their funds. Not all of these will be Russian oligarchs. Many will be pensioners, people who have just sold their houses, small companies, solicitors and accountants with client accounts. The collateral damage will be horrific.

Thank goodness they didn't seek to impose the "tax" on savers below the level of the 100,000 Euro guarantee, but the fact that it was threatened will be remembered by many and will substantially increase the risk of a bank run in other troubled Eurozone countries.

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 March, 2013, 18:45Be the first to give this comment the thumbs up 0 likes

To me, those two phrases have meant 'certainty' rather than 'safety'. Not sure what's the deposit insurance limit in Cyprus but, if we consider the US, the FDIC insurance limit is US$ 250K, so in the event of a bank going bust, account holders should be contractually prepared to lose 100% of their balance above that figure. Given that they're able to recover 60% of their balance above EUR 100K from banks in Cyprus, aren't they getting more than what they were *contractually* promised? I know the situation is very different *emotionally* but, end of the day, spin doctors might latch on to the contractual standpoint. People lost the bulk of their trust with banks as custodians of their money during the GFC. I doubt if Cyprus makes much too much difference.

Martin Bailey

Martin Bailey

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Temenos

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