Cyprus bank levy: UK to compensate troops and government workers

[fedsron2us]

5. As I understand it the levy is not strictly a tax as the money is not transferred to the govenment

Instead it is a cram down or savings write off. Since deposits are technically liabilities on a banks balance sheets then it is supposed to strengthen the banks credit position. The slight problem is that it will almost certainly cause a bank run once the doors of these institution reopen that will wipe out these banks. Even if they do survive they are unlikely to be getting much in the way of new deposits. Moreover, it is a bizarre form of restructuring when depositors who are in theory the last group of people who should lose money in a bank administration are hit before bond and equity holders. The policy of hitting investors holding insured deposits (ie less than 100000 Euros) is a disaster and risks causing bank runs in Spain, Italy and Portugal should there be even a whiff of a similar bank restructuring in those countries Worse it preempts and undermines existing attempts by the EU to set up an orderly EU wide regime for winding up failed banks