Thursday, May 30, 2013

ECB: Cyprus Shock Caused Deposit Flight

The euro zone’s messy bailout of Cyprus caused a mini-run on banks in many of the currency union’s 17 members in April, exacerbating a decline in lending to the real economy, data from the European Central Bank showed Wednesday.

The Cyprus rescue was notable for being the first time that the euro zone imposed losses on bank depositors in order to bring banks seen as important to the financial system back to an acceptable level of capitalization.

Although European officials hastily abandoned original plans to impose losses even on insured depositors, and rushed to stress that Cyprus’s problems were unique, savers in other countries, especially those whose banking sectors were under stress, appear to have feared that their savings could face similar treatment.