The real problem here is not that depositors are getting a "haircut", which they should if they invest in non-profitable bank, but that the insurance on deposit

The real problem here is not that depositors are getting a "haircut", which they should if they invest in non-profitable bank, but that the insurance on deposits under Euro 100,000 is no longer good. In a theoretical free market, depositors would lose all their money if a bank goes bust, just as stock holders lose their money if a company goes bust. Banks, however, hold a particular role in a modern economy that regular companies don't. As such, deposit insurance is a necessity for overall financial stability. In the case at hand, the decision by the Cypriot gov't to effectively cancel deposit insurance for smaller depositors is their biggest mistake, since it decreases confidence in both the banks and the gov't.