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Cyprus bank heist flags up a major systemic problem in the eurozone

Posted on 11 May 2013 with no comments from readers

It is astounding to us how quickly the Cyprus bank heist has been brushed under the carpet. The problem is that it is not going to stay there. You can’t have banks in the eurozone stealing depositors money. It sets a precedent.

Last Wednesday the chairman of eurozone finance minsters warned that uninsured depositors in eurozone banks could face losses in new bank stress tests. That ought to be a red light to any substantial depositor.

Bank heist

We often hear reports back from readers about delays in transmitting money and holding back of escrow account money for spurious reasons. But this is a stage further. The money never comes back.

Why would you hold a large deposit inside the eurozone, particularly in a country where the banking system has lately been facing debt challenges?

If eurozone bank depositors are actually unsecured creditors of the bank does this not make a difference? Have the deposits become an investment in the bank?

That certainly alters the nature of a bank’s balance sheet. But then they are always hard to read on close inspection. How do you value all these over-the-counter derivatives? Perhaps not as highly as the banks do in their asset statements.

These systemic problems set the banks up for a crisis in the future when the truth comes out. Look at what happened in Cyprus and there is a clear precedent for the eurozone, and we know its debts are not stable.

Act now!

The time to act is now. Diversifying investments beyond the reach of the banks is one solution. Less paranoid investors will seek out the best banks in the best locations and stick with them.

The ArabianMoney investment newsletter (subscribe here) continues to like gold despite the recent price crash that is actually a gift for anybody prepared to take it. But don’t judge gold on its record of a few months.

Look back to which asset has protected best against the money printing of the past decade and it is gold, and even better silver. Volatility is just a fact of life unless you want to risk everything in a bank account!

Posted on 11 May 2013 Categories: Banking & Finance, Bond Markets, Global Economics, Gold & Silver

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