Sunday, March 17

What Happened to Cyprus's Deposit Insurance Scheme?

So much for all quiet on the Eurozone front, a quiet which barring election rumblings from Italy has largely been enjoyed since Drahgi's LTRO blitz.

While it's unclear whether this weekend's 'bailing in' of Cyrpiot depositors will prove the trigger point for the final Eurozone reckoning, what is clear is that all the 'crazies' who have been stashing their money under their mattresses perhaps weren't so crazy after all.

One thing I'm curious about, which I haven't seen discussed in any detail anywhere else, are the mechanics behind what happened to Cyprus's deposit insurance scheme.

For example, is the insurance scheme, like the entire Cypriot banking system, insolvent? If yes, by how much? Could it be recapitalized through a tax? Etc.

The high level details of Cyprus's deposit insurance program, which goes by the name Deposit Protection Scheme (DPS), are discussed on the Central Bank of Cyprus's webpage here. As has been widely reported, depositors in Cypriot banks are supposed to be fully insured for €100.000 "per depositor, per bank".

Some reports state that if Cyprus's banks were allowed to fail then the small, fully insured depositors would be made whole. So do depositors who have €100.000 or less of insurable deposits have recourse for legal action in Cyprus?

One thing is clear: if I were a Cypriot depositor I would much rather have cash right now than shares in an insolvent bank.

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