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Background and summary (forgive me if some details need correcting): Cyprus is a tiny country with a GDP not much higher than Tim Hortons. Yet, it had somethin

Background and summary (forgive me if some details need correcting): Cyprus is a tiny country with a GDP not much higher than Tim Hortons. Yet, it had something like 150 billion in private funds stored in two of its banks: the Bank of Cyprus and Lakie. Why? Because the majority of the funds (I am generalizing) belongs/belonged to Russians who took advantage of the people on the conversion out of communism (dirty money). As North Americans have Swiss bank accounts, the Russians have Cyprus. Obviously, other people have their money in here too. Greek's insolvency impacted Cyprus greatly, because a large portion of the Cyprus population are of Greek descent. Thus, when the banks were figuring out where to invest, a large portion of the funds went to Greece. As a result, the banks lost a ton of money, and are on the verge of making the country insolvent. The IMF said the government needed to come up with a large amount of money. At first they tried to pass a bill that would skim 10% off all Cyprus bank accounts that had over 10k Euros. There was unimaginable outrage, because as you can guess, that affects a good portion of the population. In response, they changed the bill to only affect those with over 100k Euros. Interestingly, this time, mostly the Russian dirty money was affected, and there was not as much public outrage (stealing stolen money). As a result, now 30% of all bank accounts over 100k Euros are being seized. All the North Americans probably don't realize why this is such a big deal. In North America, we have money in companies, hedge funds, etc. In Europe, from what I've been told, banks are the major (almost exclusive) depository. Thus, you can imagine that this is a much bigger deal.

pliny 14y ago
>because a large portion of the Cyprus population are of Greek descent. Thus, when the banks were figuring out where to invest, a large portion of the funds went to Greece What a responsible investment strategy. 'What should we invest all this Russian gangster money in?' 'Well, I like goat cheese.'
- anigbrowl 14y ago
  I suppose you think they should have sunk it all into aqueducts and amphitheaters.
fakeer 14y ago
So, if some country (and as you say Europe) where still primary mode of parking your earnings is banks what are other options to play safe in case such a seizure happens? Real estate is one I can see. What else? Gold, you will have to keep in a bank in the end. What about shares, aren't they somehow related to sth deposited in a bank? I mean, how do you safeguard your savings then?
- fennecfoxen 14y ago
  You can always hold cash... of course, that's got its own risks (theft), and you're not immune from inflation... Using something a store of value is essentially anticipating that someone will give you something valuable in the future. This holds whether that store of value is a promise from a bank (in your deposit account), or a government bond, or a commodity. You can never be completely sure of the future. But some entities are much better about it than others.
- qdog 14y ago
  There seems to be some confusion as to what a bank is on this board. Every time you deposit say $1 with a bank, they lend out $.90 of it at interest for mortgages, payrolls, etc. It's these investments the bank makes that can (and do) wreck money. The government of the US and EU recognize this risk for most people is detrimental and offer insurance on the first 100,000 deposited. The phrase "seized account" does not appear to be correct, more correct would be "The Cypriot banks lost something like 40% of all deposits and all depositors over the 100,000 insured mark have lost their investment." Any deposit in a bank is still an investment, even if they don't pay interest, because banks don't just put all your coins and bills in a vault, they just mark you down as a number in their books. The risk you take is that government backing the deposit insurance AND the bank don't do something dumb. Banks are usually much more highly regulated than hedge funds, but a quick look at how often banks fail (the US has something like 800+ banks on the unnoficial FDIC watch list) should sober anyone up. Hold physical money is the only not to be at risk of losing a deposit, and then you have to provide for security, and you sure aren't going to earn interest. I'm not really enthusasiastic about bitcoins, but one could argue they solve the problem of trying to keep a bunch of wealth out of the risk of banks, without having to have a huge pile of physical currency/valuables.
jlarocco 14y ago
I haven't been following this too closely, but the impression I've got from the news media is that the vast majority of accounts with >100k Euros are there for tax avoidance and other shady purposes like you mention. It sucks that this guy's business lost money, but I have a hard time feeling too bad for him, if he (probably) only had the account there for tax avoidance purposes. I'm curious what percentage of the accounts with >100k Euros actually belong to Cypriots. Those are the people who are really getting screwed.
- NiekvdMaas 14y ago
  It's true that the majority of these accounts are from foreign people, but that doesn't mean there is anything illegal with putting your money on a Cyprus bank account. Please note that Cyprus is part of the EU for a long time, and this way of tax avoiding (not evasion) is completely legal.
  - rayiner 14y ago
    It's not any less technically legal for the E.C.B. to levy those bank accounts.
  - jlarocco 14y ago
    Oops, I updated my post. Meant to say avoidance instead of evasion. Being legal doesn't change my sentiment.
  - JumpCrisscross 14y ago
    As of December 2012 62% of deposits in Cyprus were by domestic residents. Removing the €5,3 billion in non-Cypriot euro-deposits and we find about 31% of the mostly Russian and British deposits [1]. The political problem were the foreign deposits. The financial problem were 2011 foreign deposits at 82% of GDP, total deposits 2011 nearly 3x GDP, and bank assets 5-7x GDP. [1] http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013.xls http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013...
    - iuguy 14y ago
vellum 14y ago
A lot of the Russians took their money out via loopholes. http://www.spiegel.de/international/europe/cypriot-parliament-investigates-government-after-dubious-transactions-a-891168.html http://www.spiegel.de/international/europe/cypriot-parliamen... At the end of January, some 40 percent of all savings held in Cypriot accounts were on the books of those two banks. Since then, however, much of it has been transferred elsewhere, despite orders from the central bank that accounts at the two institutions be frozen. ... Transfers for humanitarian aid were permitted which, while certainly an acceptable exception, opened a loophole for abuse. Many are also furious that the bank allowed "special payments," the definition of which was never adequately established. ... Much of the money was withdrawn from overseas, where Cyprus had no authority. Branches of Cypriot banks in non-euro-zone countries such as Russia and Britain do not answer to the European Central Bank. Their liquidity is controlled by central banks in those countries.
ekianjo 14y ago
> Interestingly, this time, mostly the Russian dirty money was affected, and there was not as much public outrage (stealing stolen money). Huh? Sorry, do you assume that all savings above 100k euros were from the Russian Mafia ? That's a very serious claim to make. And even if it was indeed true there is due process to follow before confiscating the funds. You need tracability, trials and so on. And in case you do not seem to know that, bank savings should be protected by the law against confiscation - that is one of the most basic agreements in the property laws in every country. If that principle is violated, the consequences can be serious (bank run, more banks going bankrupt, lack of funds for private companies investment, etc...). And there is still public outcry anyway because even people with savings less than 100k euros can only withdraw about 300 euros a day, cannot take their savings out, cannot transfer them anywhere. There is serious economic disruption going on because of this mess. If you think it only impacts the Russian Mafia you should travel to Cyprus and see for yourself.
mike_esspe 14y ago
I think here is a better explanation of what happened: http://www.cyprus.com/cyprus-bailout-stupidity-short-sightedness-something-else-.html http://www.cyprus.com/cyprus-bailout-stupidity-short-sighted...
JumpCrisscross 14y ago
"[Cyprus] had something like 150 billion in private funds stored in two of its banks: the Bank of Cyprus and Lakie" As of today, deposits stand at €68 billion [1]. The peak was €73 billion in May 2012 [2]. [1] http://www.ft.com/intl/cms/s/0/f13edbfc-9780-11e2-b7ef-00144feabdc0.html#axzz2OuGSVw6Q http://www.ft.com/intl/cms/s/0/f13edbfc-9780-11e2-b7ef-00144... [2] http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013.xls http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013...
iuguy 14y ago
> Greek's insolvency impacted Cyprus greatly, because a large portion of the Cyprus population are of Greek descent. Just to add a little context to this. Cyprus is a divided country, as a result of a conflict in 1973 between Turkish Cypriots (and Turkey) and Greek Cypriots (and Greece). The Greek Cypriots favoured unification with Greece (Enosis) whereas the Turkish minority felt threatened by this (due to various times in which sectarian violence had spread on the Island, and also due to fears of reprisals for anti-greek pogroms in mainland Turkey). The whole thing is really complicated and basically no-one wins. Fast forward to 2004 and a referendum is held on whether Cyprus should unify. The Turkish north votes yes, the Greek south votes no and Cyprus enters the Euro leaving Northern Cyprus out in the cold. The people with over 100k Euros that are being affected the most aren't the Russian depositors but older Cypriots who rode the tourist property boom. There was a vote on this and it was turned down, and then the Troika (of the Eurozone countries, ECB and IMF) decided they'd sidestep the whole thing and re-arrange the country's banking system for them. The amount the troika were looking for was not a great deal of money to the EU or IMF, about €6 billion. This represents less than the amount spent on administration or internal policies in the last budget, and would be less than a fifth of the Common Agricultural Policy (CAP) budget. This figure was also arbitrarily decided by the troika not based on what Cyprus could actually afford (given the size of it's collapsing economy) but for political reasons because it's politically unacceptable for Germany to be seen by Germans to provide no strings bailouts to another Greece, and the IMF wanted to restructure Cyprus' banking system. The big problem is that with this intervention it sets two extremely dangerous precedents. The first is that exiting the Euro (which would've been better for Cyprus) is not an option for bankrupt Eurozone countries. It's not even on the table. The second is that what's happened in Cyprus this week can happen in Greece, Italy, Spain, Portugal, Luxembourg (where the real Russian money is) or Ireland next week or at any point in the future, and as Shenglong said, banks are the major savings depository for most of Europe. If that doesn't scare my American friends then nothing will.
- coldtea 14y ago
  >Fast forward to 2004 and a referendum is held on whether Cyprus should unify. The Turkish north votes yes, the Greek south votes no and Cyprus enters the Euro leaving Northern Cyprus out in the cold. This sounds like a mysterious outcome, given what you said above, but one can add that the "unification plan" was to create an old-style colonial protectorate, which, besides giving foreign powers the power to meddle with the new "state" affairs, gave equal political power to the Turkish minority (the majority of which came post-invasion in order to take control of the Turkish side) and to the Greek majority (instead of using legitimate elections). And of course it didn't address any of the violations of lots of UN rulings by the occupying force. So mainly it was just perpetuating the occupation and the injecting, and saying "ok, now you both have half-half stakes at a new country".
lazyjones 14y ago
> Because the majority of the funds (I am generalizing) belongs/belonged to Russians who took advantage of the people on the conversion out of communism (dirty money). You are not generalizing, you are just making this up. Only about 20% of the deposits in Cyprus belong to Russians. > Greek's insolvency impacted Cyprus greatly, because a large portion of the Cyprus population are of Greek descent. Nope. It impacted Cyprus because it participated in the Greece bailout and lost 4.5 bil to the haircut that followed.
- argonaut 14y ago
  > You are not generalizing, you are just making this up. Calm down. Firstly, one number states that 30% of deposits are foreign owned [1]. Secondly, the accurate description of Shenglong's error would be "exaggerating." > Nope. It impacted Cyprus because it participated in the Greece bailout and lost 4.5 bil to the haircut that followed. You just attacked a straw man by quoting Shenglong out of context. [1]http://www.nytimes.com/2013/03/27/business/global/bailout-grows-riskier-as-cypriot-economy-stumbles.html http://www.nytimes.com/2013/03/27/business/global/bailout-gr...
  - icebraining 14y ago
    Foreign and Russian are a little different concepts.
    - argonaut 14y ago
      Now that's just semantics. Give me a citation if you want to refute me.
      - icebraining 14y ago
        About 37% of deposits are owned by foreigners, according to Barclays, and nearly 60% of that belongs to Russians, numbers compiled by Danske Bank (...) indicate. So, nearly 60% of 37% is about 22%, not 30%. http://www.forbes.com/sites/afontevecchia/2013/03/18/eu-takes-shot-at-moscow-with-cyprian-haircut-as-russians-own-22-of-deposits/ http://www.forbes.com/sites/afontevecchia/2013/03/18/eu-take...
fab13n 14y ago
> In North America, we have money in companies, hedge funds, etc. In Europe, banks are the major depository. But then, banks put those deposits to work in companies, hedge funds etc., so it amounts to the same, with an intermediate which mitigates risks (not perfectly as illustrated here) and takes a fee.

pliny 14y ago

>because a large portion of the Cyprus population are of Greek descent. Thus, when the banks were figuring out where to invest, a large portion of the funds went to Greece What a responsible investment strategy. 'What should we invest all this Russian gangster money in?' 'Well, I like goat cheese.'

anigbrowl 14y ago
I suppose you think they should have sunk it all into aqueducts and amphitheaters.

fakeer 14y ago

So, if some country (and as you say Europe) where still primary mode of parking your earnings is banks what are other options to play safe in case such a seizure happens? Real estate is one I can see. What else? Gold, you will have to keep in a bank in the end. What about shares, aren't they somehow related to sth deposited in a bank? I mean, how do you safeguard your savings then?

fennecfoxen 14y ago
You can always hold cash... of course, that's got its own risks (theft), and you're not immune from inflation... Using something a store of value is essentially anticipating that someone will give you something valuable in the future. This holds whether that store of value is a promise from a bank (in your deposit account), or a government bond, or a commodity. You can never be completely sure of the future. But some entities are much better about it than others.
qdog 14y ago
There seems to be some confusion as to what a bank is on this board. Every time you deposit say $1 with a bank, they lend out $.90 of it at interest for mortgages, payrolls, etc. It's these investments the bank makes that can (and do) wreck money. The government of the US and EU recognize this risk for most people is detrimental and offer insurance on the first 100,000 deposited. The phrase "seized account" does not appear to be correct, more correct would be "The Cypriot banks lost something like 40% of all deposits and all depositors over the 100,000 insured mark have lost their investment." Any deposit in a bank is still an investment, even if they don't pay interest, because banks don't just put all your coins and bills in a vault, they just mark you down as a number in their books. The risk you take is that government backing the deposit insurance AND the bank don't do something dumb. Banks are usually much more highly regulated than hedge funds, but a quick look at how often banks fail (the US has something like 800+ banks on the unnoficial FDIC watch list) should sober anyone up. Hold physical money is the only not to be at risk of losing a deposit, and then you have to provide for security, and you sure aren't going to earn interest. I'm not really enthusasiastic about bitcoins, but one could argue they solve the problem of trying to keep a bunch of wealth out of the risk of banks, without having to have a huge pile of physical currency/valuables.

jlarocco 14y ago

I haven't been following this too closely, but the impression I've got from the news media is that the vast majority of accounts with >100k Euros are there for tax avoidance and other shady purposes like you mention. It sucks that this guy's business lost money, but I have a hard time feeling too bad for him, if he (probably) only had the account there for tax avoidance purposes. I'm curious what percentage of the accounts with >100k Euros actually belong to Cypriots. Those are the people who are really getting screwed.

NiekvdMaas 14y ago
It's true that the majority of these accounts are from foreign people, but that doesn't mean there is anything illegal with putting your money on a Cyprus bank account. Please note that Cyprus is part of the EU for a long time, and this way of tax avoiding (not evasion) is completely legal.
- rayiner 14y ago
  It's not any less technically legal for the E.C.B. to levy those bank accounts.
- jlarocco 14y ago
  Oops, I updated my post. Meant to say avoidance instead of evasion. Being legal doesn't change my sentiment.
- JumpCrisscross 14y ago
  As of December 2012 62% of deposits in Cyprus were by domestic residents. Removing the €5,3 billion in non-Cypriot euro-deposits and we find about 31% of the mostly Russian and British deposits [1]. The political problem were the foreign deposits. The financial problem were 2011 foreign deposits at 82% of GDP, total deposits 2011 nearly 3x GDP, and bank assets 5-7x GDP. [1] http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013.xls http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013...
  - iuguy 14y ago

vellum 14y ago

A lot of the Russians took their money out via loopholes. http://www.spiegel.de/international/europe/cypriot-parliament-investigates-government-after-dubious-transactions-a-891168.html http://www.spiegel.de/international/europe/cypriot-parliamen... At the end of January, some 40 percent of all savings held in Cypriot accounts were on the books of those two banks. Since then, however, much of it has been transferred elsewhere, despite orders from the central bank that accounts at the two institutions be frozen. ... Transfers for humanitarian aid were permitted which, while certainly an acceptable exception, opened a loophole for abuse. Many are also furious that the bank allowed "special payments," the definition of which was never adequately established. ... Much of the money was withdrawn from overseas, where Cyprus had no authority. Branches of Cypriot banks in non-euro-zone countries such as Russia and Britain do not answer to the European Central Bank. Their liquidity is controlled by central banks in those countries.

ekianjo 14y ago

> Interestingly, this time, mostly the Russian dirty money was affected, and there was not as much public outrage (stealing stolen money). Huh? Sorry, do you assume that all savings above 100k euros were from the Russian Mafia ? That's a very serious claim to make. And even if it was indeed true there is due process to follow before confiscating the funds. You need tracability, trials and so on. And in case you do not seem to know that, bank savings should be protected by the law against confiscation - that is one of the most basic agreements in the property laws in every country. If that principle is violated, the consequences can be serious (bank run, more banks going bankrupt, lack of funds for private companies investment, etc...). And there is still public outcry anyway because even people with savings less than 100k euros can only withdraw about 300 euros a day, cannot take their savings out, cannot transfer them anywhere. There is serious economic disruption going on because of this mess. If you think it only impacts the Russian Mafia you should travel to Cyprus and see for yourself.

mike_esspe 14y ago

I think here is a better explanation of what happened: http://www.cyprus.com/cyprus-bailout-stupidity-short-sightedness-something-else-.html http://www.cyprus.com/cyprus-bailout-stupidity-short-sighted...

JumpCrisscross 14y ago

"[Cyprus] had something like 150 billion in private funds stored in two of its banks: the Bank of Cyprus and Lakie" As of today, deposits stand at €68 billion [1]. The peak was €73 billion in May 2012 [2]. [1] http://www.ft.com/intl/cms/s/0/f13edbfc-9780-11e2-b7ef-00144feabdc0.html#axzz2OuGSVw6Q http://www.ft.com/intl/cms/s/0/f13edbfc-9780-11e2-b7ef-00144... [2] http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013.xls http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013...

iuguy 14y ago

> Greek's insolvency impacted Cyprus greatly, because a large portion of the Cyprus population are of Greek descent. Just to add a little context to this. Cyprus is a divided country, as a result of a conflict in 1973 between Turkish Cypriots (and Turkey) and Greek Cypriots (and Greece). The Greek Cypriots favoured unification with Greece (Enosis) whereas the Turkish minority felt threatened by this (due to various times in which sectarian violence had spread on the Island, and also due to fears of reprisals for anti-greek pogroms in mainland Turkey). The whole thing is really complicated and basically no-one wins. Fast forward to 2004 and a referendum is held on whether Cyprus should unify. The Turkish north votes yes, the Greek south votes no and Cyprus enters the Euro leaving Northern Cyprus out in the cold. The people with over 100k Euros that are being affected the most aren't the Russian depositors but older Cypriots who rode the tourist property boom. There was a vote on this and it was turned down, and then the Troika (of the Eurozone countries, ECB and IMF) decided they'd sidestep the whole thing and re-arrange the country's banking system for them. The amount the troika were looking for was not a great deal of money to the EU or IMF, about €6 billion. This represents less than the amount spent on administration or internal policies in the last budget, and would be less than a fifth of the Common Agricultural Policy (CAP) budget. This figure was also arbitrarily decided by the troika not based on what Cyprus could actually afford (given the size of it's collapsing economy) but for political reasons because it's politically unacceptable for Germany to be seen by Germans to provide no strings bailouts to another Greece, and the IMF wanted to restructure Cyprus' banking system. The big problem is that with this intervention it sets two extremely dangerous precedents. The first is that exiting the Euro (which would've been better for Cyprus) is not an option for bankrupt Eurozone countries. It's not even on the table. The second is that what's happened in Cyprus this week can happen in Greece, Italy, Spain, Portugal, Luxembourg (where the real Russian money is) or Ireland next week or at any point in the future, and as Shenglong said, banks are the major savings depository for most of Europe. If that doesn't scare my American friends then nothing will.

coldtea 14y ago
>Fast forward to 2004 and a referendum is held on whether Cyprus should unify. The Turkish north votes yes, the Greek south votes no and Cyprus enters the Euro leaving Northern Cyprus out in the cold. This sounds like a mysterious outcome, given what you said above, but one can add that the "unification plan" was to create an old-style colonial protectorate, which, besides giving foreign powers the power to meddle with the new "state" affairs, gave equal political power to the Turkish minority (the majority of which came post-invasion in order to take control of the Turkish side) and to the Greek majority (instead of using legitimate elections). And of course it didn't address any of the violations of lots of UN rulings by the occupying force. So mainly it was just perpetuating the occupation and the injecting, and saying "ok, now you both have half-half stakes at a new country".

lazyjones 14y ago

> Because the majority of the funds (I am generalizing) belongs/belonged to Russians who took advantage of the people on the conversion out of communism (dirty money). You are not generalizing, you are just making this up. Only about 20% of the deposits in Cyprus belong to Russians. > Greek's insolvency impacted Cyprus greatly, because a large portion of the Cyprus population are of Greek descent. Nope. It impacted Cyprus because it participated in the Greece bailout and lost 4.5 bil to the haircut that followed.

argonaut 14y ago
> You are not generalizing, you are just making this up. Calm down. Firstly, one number states that 30% of deposits are foreign owned [1]. Secondly, the accurate description of Shenglong's error would be "exaggerating." > Nope. It impacted Cyprus because it participated in the Greece bailout and lost 4.5 bil to the haircut that followed. You just attacked a straw man by quoting Shenglong out of context. [1]http://www.nytimes.com/2013/03/27/business/global/bailout-grows-riskier-as-cypriot-economy-stumbles.html http://www.nytimes.com/2013/03/27/business/global/bailout-gr...
- icebraining 14y ago
  Foreign and Russian are a little different concepts.
  - argonaut 14y ago
    Now that's just semantics. Give me a citation if you want to refute me.
    - icebraining 14y ago
      About 37% of deposits are owned by foreigners, according to Barclays, and nearly 60% of that belongs to Russians, numbers compiled by Danske Bank (...) indicate. So, nearly 60% of 37% is about 22%, not 30%. http://www.forbes.com/sites/afontevecchia/2013/03/18/eu-takes-shot-at-moscow-with-cyprian-haircut-as-russians-own-22-of-deposits/ http://www.forbes.com/sites/afontevecchia/2013/03/18/eu-take...

fab13n 14y ago

> In North America, we have money in companies, hedge funds, etc. In Europe, banks are the major depository. But then, banks put those deposits to work in companies, hedge funds etc., so it amounts to the same, with an intermediate which mitigates risks (not perfectly as illustrated here) and takes a fee.