Haircut on savings was an unfortunate experiment

Haircut on savings was an unfortunate experiment

 

By Kyriacos Kyriacou-Nicosia

The haircut in unsecured deposits “was an unfortunate experiment” to save damaged banks, said the Bank of Cyprus’s President Director of Board, Christes Chasapes.

In an interview to Dutch financial newspaper “De Financiele Telegraaf”, he noted that the requirement from depositors in Cyprus’s banks to contribute to the restructuring of the banking sector “caused unnecessary turmoil in the country and has increased the inherent instability in the banking system, setting a precedent for future bailouts the EU.”

He acknowledged, however, that after years of austerity and crisis in the EU “it is politically unacceptable to burden taxpayers with bailout programs.” As added, European leaders wanted to send a message that taxpayers and governments will not be the only ones to bear the burden of bank rescues.

Unfortunate test

“Cyprus was the first test and in the future haircut on savings is expected to become one of Europe’s rules. Nevertheless, applying the measure in small open economy, depended on the banking sector, at a time were nearby Greece was also affected, it was a particularly unfortunate decision,” Chasapis said.

He underlined that Bank of Cyprus’s priority is to restore trust, retention of the deterioration of the portfolio, sale of non-banking operations and maintaining capital ratios in order to ” build a strong platform for the safe return of depositors in the bank.”