90 seconds at 9 am: Cypriot anger

90 seconds at 9 am: Cyprus and the haircut; risks to euro; Russian deposits; similarity to RBNZ OBR; US homebuilding rise; Aussie massive hit; NZ$1 = US$0.827, TWI = 75.9

18th Mar 13, 8:42am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news that today, its mostly about Cyprus.

Over the weekend, the EU and the IMF agreed to bail out the country who is the smallest euro-zone member, but only if it imposed a haircut on depositor's funds in its banks.

This has started a panic in the country with an attempted bank-run - and ignited fears among bond-holders and general depositors in other countries. Actually, the Cypriots have yet to agree these haircut terms and have delayed a parliamentary vote to try and let the anger subside somewhat. It may not go as the authorities want - Cyprus could actually vote to leave the euro.

All this is relevant to us, because the Cypriot haircut (or tax, if you like) is a similar policy to what the Reserve Bank here has adopted in its Open Bank Resolution policy. If a NZ bank fails, how happy would you be to have some of your deposit taken to support a bailout? It's the opposite of deposit insurance.

In Cyprus, the haircut is 6.7% for balances up to 100,000 euros, and 9.9% for balances above that level.

Complicating the Cyprus situation is that Cyprus banks hold assets far in excess of the country's GDP - 900% of it in fact. Some of the very big depositors are Russian and there are question marks about how legit these funds are. The EU and Germany in particular have no stomach to bail out the Russians 'investors' without them paying - and the locals are caught up in this tangle.

In other news, US homebuilding rose in February, the new Chinese leadership is moving fast to free up their financial system, Australia is facing up to a "massive hit" to its government revenues which will push it deep into deficit in coming years, and Bill English has warned we face the same because of the impacts from the drought.

Later this week we get to learn Q4 2012 GDP and current account data, and find out whether our overseas debt levels have continued their steady improvement.

The kiwi dollar starts the week higher at 82.7 USc, 79.5 AUc, and the TWI is at 75.9.

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12 Comments

by andyh | 18th Mar 13, 9:04am 1363550641

Well perhaps the Cypriots have done us a favour. Inadvertantly this will hopefully force the media here to shine a light on the RBNZ OBR policy (of which 99% of Kiwis will have remained blissfully unaware till now). Perhaps it may wake folk up to the dangers of this idiotic policy; Labour and the Greens should target it, there will be votes in replacing it with something that won't collapse our banking system at the first sign of stress.

by Rudderless | 18th Mar 13, 11:13am 1363558434

Thank you for mentioning the OBR David.

I posted this a week ago and had zero response. I say it again now.

Coming to a bank near you - haircuts.

www.rbnz.govt.nz/finstab/banking/4368385.html

Note: - This link is NOT from some wild-and-whacky blogger.

Official NZ guvmint law.

by andyh | 18th Mar 13, 11:52am 1363560773

Rudderless - dont worry you are not alone, a few of us have been banging this drum ever since this disasterous policy was first mooted. Hopefully the Cyprus debacle will act as the catalyst for more Kiwis waking up to the threat.

by Rudderless | 18th Mar 13, 1:33pm 1363566791

Have you ever asked your bank manager this question?

"Are my savings held by a different bank-owned company to the bank owned company that isues my loans?"

After receiving the honest answer we re-arranged our affairs so that we have zero savings. Just an extra prime property title - that we draw against as we feel the need.

by steven | 18th Mar 13, 11:30am 1363559459

I agree I think Cyprus will be a great eye opener, at least I am hpoing so. Though I dont see anything wrong as such with the OBR in theory, I think you are either barking up the wrong tree or Im on the wrong tack.

I like the OBR, the problem it solves is with the banks functions seperated that we as consumers can go to pak-n-save and still buy food even if a bank closes its doors as they open again pretty quick.

Now I dont like this protected borrowing lark (is that waht you really mean?), but I suspect that since it locks in foreign funders it may not be what they are expecting....they are not that liquid as say I.

regards

by andyh | 18th Mar 13, 1:23pm 1363566234

This format (Hitler in the bunker) has been done to death, but this new one on Cyprus is still amusing (and insightful):

https://www.youtube.com/watch?feature=player_detailpage&v=K5R2JyU_MKg

by Patricia | 18th Mar 13, 9:58am 1363553886

Why on earth would the RBNZ adopt that? We are a sovereign country. We can print the stuff. We don't need to tax the depositors. And anyway why can't the banks pay an insurance in case any one of them failed. Just like we do with the earthquake levy. It is unbelievable how many fools are in charge of the Reserve Banks of the World. There must have been something in the water in the 1950's when they were conceived that badly affected their brains. All they can do is dress well.

by steven | 18th Mar 13, 10:37am 1363556265

All I can say is Im glad you are not the fool in charge. Im sorry but what makes you think that (generally) printing worthless bits of paper is a solution?

Even if we are at the zero bound trap and we are not, we cant print without (in the longer term) creating inflation, which impacts the poorer the most. You can look at the UK in the 1970s for that impact...

What costs on the banks insurance policy? who pays? whos big enough to meet that cost? Whos willing to cover for the banks officers stupdity and greed?

regards

by Patricia | 18th Mar 13, 1:23pm 1363566211

Steven, I don't think you have read much about printing money. It is not a good idea to quote Germany,Zimbabwe or England in the 1970s without doing a lot of reading.

by iconoclast | 18th Mar 13, 10:17am 1363555024

The Sicilian Defence versus the Cypriot Chance

And the WINNERS are "Bank Borrowers"

Those who owe the banks

Those with bank mortgages who have bought hard assets with the proceeds.

The asset rich are untouched.

By the end of this week, everyone will know the meaning of transfer of wealth from Savers to Borrowers

by steven | 18th Mar 13, 10:39am 1363556399

Yep...this is immoral and should be criminal. Its also a double whammy the very ppl who are the borrowers who have been doing it unsafely are getting off free paid for by those who have been saving.

great stuff.

regards

by iconoclast | 18th Mar 13, 10:21am 1363555317

As of today, a lot of dirty European money will be heading south