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Monday, March 25, 2013

Russian PM lambasts deal to rescue Cyprus

Losses on many bank deposits through the mechanism of a bail-in have redefined depositors as lenders to the bank. As such, depositors will be recognized as potential contributors to the solvency of the bank under conditions of stress.

Confiscation of deposits is a big deal. This decision opens the door to flight of capital as deposits of size begin the process of seeking alternatives and increases the likelihood of banks runs at the first sign of strain.

As confiscation and flight of capital become the norm, it increases the likelihood of forced loans. Force loans are often the precursor to a collapse of social order.

While stocks may jump in the rescue deal, its influence could be short-lived. This does not mean stocks are primed for a crash either (chart).

Chart:  Nasdaq 100 (QQQQ) And Nasdaq 100 Diffusion Index (DI)

Headline: Russian PM lambasts deal to rescue Cyprus

MOSCOW (AP) — Russia's prime minister has slammed a deal that saves Cyprus from bankruptcy but forces big losses on many bank deposits, a large chunk of which are held by Russians.

Cyprus secured a 10 billion euros ($13 billion) bailout early Monday on the condition it scales back its banking sector and forces hefty losses on a number of big deposits to help pay much of the bill.

Dmitry Medvedev says the move is tantamount to theft.


Headline:Cyprus Relief: Why the Rally May Be Short Lived

An eleventh-hour deal to resolve Cyprus' financial crisis helped Asian and European markets higher on Monday, but analysts warn that "risk-on" may be short lived, with downside risks remaining.

The rally came as Cyprus secured a deal with the so-called Troika for a 10 billion euro ($13 billion) bailout. The proposal also includes a levy on uninsured deposits over 100,000 euros in the Popular Bank of Cyprus, known as Laiki, the country's second biggest bank, which is set to be wound down.



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