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Did money leave Cyprus banks while they were closed?

Mar 25, 2013

It is now being reported that while the banks in Cyprus were closed and funds supposedly "frozen," some were able to get out their money and wire it to foreign banks.


(Reuters) - As new President Nicos Anastasiades hesitated over an EU bailout that has wrecked Cyprus's offshore financial haven status, money was oozing out of his country's closed banks....

EU negotiators knew something was wrong when the Central Bank of Cyprus requested more banknotes from the European Central Bank than the withdrawals it was reporting to Frankfurt implied were needed, an EU source familiar with the process said. "The amount the Cypriots mentioned... on a daily basis was much less than it was in reality," the source said....

No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors....

ECB officials contacted Latvia, another EU country that has received large Russian deposits, to warn authorities against taking in Russian money fleeing Cyprus, two sources familiar with the contacts said.

"It was made clear to our Latvian friends that if they want to join the euro, they should not provide a haven for Russian money exiting Cyprus," a euro zone central banker said.


If the report is true, it would appear that Cyprus banks had foreign branches that were not closed during this bank holiday. Depositors (other than homebound Cypriots, of course) could fly to the UK, for instance, and wire their money to another bank. Since Latvia seemed like a logical place for Russians to wire their money, "the ECB officials contacted Latvia," to warn them not to accept money being wired out of those Cyprus banks!

That tells us that the ECB officials knew what was happening and tried to stop it, probably with limited success. Meanwhile, the ordinary people of Cyprus were denied access to their accounts.

The result of this, the article says, is that a lot of the money from the bankrupt Laiki Bank, which was supposed to be used to help fund the Bank of Cyprus, is now gone. The Bank of Cyprus is not going to be as well capitalized as planned. Those who had deposits greater than 100,000 euros, but who were unable to get it out of the bank, will now lose far more than the projected 30%. It is likely that they will lose all their money except for the first 100,000 euros that were insured.

When we add this factor to the inevitable bank run that will come as soon as the banks open their doors, the picture seems rather bleak in Cyprus for the average person.

Doesn't anyone over there know about the Jubilee? Have they not heard what Iceland did? Someone ought to tell them.


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Category: Financial

Dr. Stephen Jones

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