Paying for an Irish haircut with a Cypriot haircut

We don’t know the individual profile of every depositor in Cyprus but we do have some gross numbers, there are about 19,000 depositors at Bank of Cyprus with with uninsured deposits of €8bn, they will face a 40% haircut, at Laiki there are uninsured deposits of c. €3.2bn and they’ll get about an 80% haircut, some are saying that virtually all of that may be lost in the end workings.

Depositors getting creased was one of the things that justified central banks creation, which makes this ongoing story unusual in its own right.

As for the haircuts in BoC, 19,000 accounts and €8bn equate to about €421,000 per uninsured account – not precise because obviously they don’t all have the same balances, but to average that out with a 40% reduction comes to a haircut of approximately €168,400 that’s quite a haircut!

To put it in actual ‘haircut’ terms, it’s like this, I get a haircut about once every 5 weeks, which give or take turns into about 11 a year, they cost €13 every time, round it to €15 …

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Deposit Guarantee Scheme revamped to cover €100,000

The Deposit Guarantee Scheme has been revamped as of yesterday to cover any depositer in an Irish institution for up to €100,000 per person. This move is being done to help restore confidence in the Irish financial markets.

The scheme was created in the mid 90’s and throughout its history cover was never index linked or adjusted for inflation and therefore it never increased. The recent move is designed to restore confidence in the Irish banking system, however, there is one small oversight that Mr. Lenihan has omitted from the story, namely, the amount of money in the scheme.

Prior to this the scheme covered people for 90% of their deposit to a limit of €22,000. This meant that in effect you could only ever expect to get a maximum payout from the scheme of €20,000, this was amongst the lowest levels of cover in Europe and now, in a pen stroke we are one of the highest (only Italy covers more).

However, there is still that issue I mentioned earlier of the …

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How far are we down the rabbit hole?

How far into the credit crunch and liquidity crisis are we? Banking stocks would have you think that it’s all upwards from here on in but how can you be sure? The Regulators in the USA were prepared for 100 to 200 bank closures in the 12-24 month period from the end of 07′. Thus far we have only seen eight actually close.

The total amount of assets involved is €38 billion. That might not seem like much when talking about bankers money, but keep in perspective that its 38,000 units of a million, its twice the size of AIB, its more than all of the lending market in Ireland for the whole year of 2007. And of course this is just the portion that have gone under, the actual ‘writedowns’ that other banks are surviving are (when added together) much larger, which means that some banks are just better able to take their blows than others. The worrisome thing in some cases …

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