Tuesday, March 19, 2013

Why are Cyprus Banks in Trouble?

In all the talk about the Cyprus situation, very little is mentioned about why the banks are in such trouble.  Sure, they have a huge amount of deposits relative to GDP...but where were those deposits invested?  There must have been (recent) losses to cause the insolvency of the country's banking system.

What is the source of the losses?

Hmmm....who wants to bet the losses are based on the haircuts that non-government owners of Greek bonds had to take back in 2012 as part of the second Greek rescue package.

So we are still seeing the follow-on effects of the Greek crisis.  Question is if the knock-on effects are weakening or strengthening.

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