Eco+Nomics

A while ago, I read an article of WSJ written by  Katie Martin  concerning the market tranquillity with respect to what happens in Cyprus; the probable bank deposits haircut and the non-attainment of any agreement among EMU member countries. Among the explanations of this calmness reported by apparently successful analysts I found one, that of Mr.  Beat Siegenthaler, a UBS analyst, who more or less states that the risk of diffusion of a crunch in Cyprus is perceived to be low. I really do not know if that is indeed a general sense- although several other rather interesting interpretations are listed- but that is not the case at all and claiming the opposite is naive especially in the aftermath of Lehman Brothers collapse. The risk of contagion following a crash in the Cypriot financial system is high and most certainly non negligible. I shall elaborate. After doing some trivial digging I found an article that matches my needs; Billio et al. (2012)[1], concerning the es...

Earlier today I received a text from a friend of mine reporting that none of the commercial banks in Greece accept cheques issued by Cypriot credit institutions and I got really concerned for "the day after tomorrow"- it is either a signal that they fear the worst or perhaps just the fact they they cannot "liquefy" these cheques at the moment. Although I am really confident that depositors may not inundate the Cypriot banks to withdraw their funds, such a risk is still lurking...  While we are focusing on restoring (via government debt and haircuts) the regulatory capitals we seem to  ostentatiously exhibit our negligence for the bank-run risk; even of the slightest probability that that scenario might actually occur.  If someone had € 100,000 of deposits and suddenly the government decided to levy a 10% tax on their value how this depositor would react? First of all, he does not know whether this tax is collected once and for all or not and, even worse, his neig...