Bank raid !

People living in a country with Euro currency have reason to be very worried.   Particularly if the country they live in is having dire financial difficulties and will need a bailout from the IMF.   Cyprus meets that description, and it has just been granted a $ 10 billion bailout, but with terms that will distress many of it's citizens.

This bailout from the IMF - which seems to have tactic approval from Brussels - requires a levy to be imposed on all account holders in that nation's banks.   Usually, it is the citizens who borrow money from the bank for various reasons.  That has been reversed and now those same citizens are legally required to provide a loan to their bank - and there are no exceptions.

All accounts with a balance over $ 100,000 will have 9.9% of the money removed and placed at the banks disposal.   Those with a lesser balance will be relieved of 6.75% of their savings.   In exchange, they will be given a piece of paper recording this " loan " to the bank, which they may regard as some sort of " share certificate " - which may hopefully be redeemed some time in the future - if conditions improve !

This desperate measure is intended to reinflate the banks reserves and allow it to continue lending to help improve the Cyprus economy.  It changes the complexion of future bailouts.   No longer will the IMF simply shell out relief money.  Restoring bank solvency will be a mix of money from the IMF combined with a raid on the savings of the citizens of the country involved.   There is every chance that this will be the formulae for all future bailouts.

It seems that the IMF feared that if Cyprus went to the wall it could bring down the Euro and send the entire EU into meltdown.   At the same time, there were many inequities in the Cyprus banking system, particularly in regard to money transfers in and out of Russia.   There was a suspicion that these banks were engaging in money laundering and the amounts involved were well out of kilter with normal banking practice.   The levy on balances was a surprise move with no advance warning, otherwise panic would ensure a run on the banks - with disastrous results.

Citizens of world countries will digest this news with horror.   A precedent has been set - and nobody can be certain where and if a similar raid may be levied on the funds they have deposited with a bank.   It certainly makes that old witticism -  " Safe as a bank " sound rather hollow !