Malta throws a spotlight on how secure our bank accounts really are – or aren’t
Sharon Connor’s story, featured on our front page today, is one of the most heart-rending we have ever covered. Not only did she lose her husband tragically early, she has now also lost much of her life savings amid the Cypriot banking collapse.
Once again it throws the spotlight on how secure our bank accounts really are. Last week I wrote that AgriBank, a new player in the British savings market, is offering temptingly high interest rates, but is authorised in Malta, and therefore dependent on the Maltese €100,000 deposit protection scheme.
With memories still fresh of the Iceland debacle, when Icesave’s failure overwhelmed the country’s deposit protection scheme, I felt it worth a warning, especially given the fact that Malta, like Cyprus, has a super-sized financial sector.
I was wrong. The truth is that deposits in AgriBank are not protected whatsoever. What has emerged is that there is an alarming loophole in EU compensation arrangements, and reason to be seriously concerned about the EU’s so-called “single passport” for banking.
AgriBank, although it has no historic connections with Malta, has been granted a licence to operate as a bank by the Malta Financial Services Authority (MFSA) and, because Malta is in the EU, the bank is allowed to take deposits in any of the 26 other countries in the union.
This is one of the drawbacks to the EU’s neo-liberal drive for single markets, but profound inability to produce single regulators. We have the farcical set-up of a single banking market, but 27 different regulators all able to offer authorisation for a bank to operate across the entire union. Given the dog’s dinner that is RBS, maybe you think our regulators in London are no better than those in Bucharest or Bratislava, but I don’t quite buy it. The catastrophic collapses in Reykavik (though outside the EU) and Nicosia tell you otherwise.
But even more bizarre is the loophole that has opened up in Malta. It turns out I was right to assume that banks registered in an EU state have to become members of that state’s €100,000 protection scheme, as set out in the European Deposit Guarantee Scheme Directive.
But see if you can make head or tail of this. The MFSA emailed me to say: “We can confirm AgriBank is a member of the Malta Deposit Compensation Scheme (DCS).” Yet on AgriBank’s website it says
Large firms will have to get clearance to pay their workers and ATM withdrawal limits will remain in place
What are the capital controls being introduced in Cyprus?
• All savings accounts must run until their expiry date – no early withdrawals allowed.
• No cheques will be cashed, although cheque deposits will be allowed.
• Payments out of the country are suspended. Individuals will only be allowed to take €3,000 (£2,500) in cash on each trip out of the country.
• Unlimited use of credit cards is allowed within Cyprus, but there’s a spending limit of €5,000 a month abroad.
• Import payments will be allowed when ‘the relevant documents’ are provided to the authorities and Cypriots can only transfer up to €10,000 a quarter for fellow citizens who are studying abroad.
• The measures will apply to all accounts, regardless of the currency used.
Why are controls necessary?
Without restrictions on the movement of money the Cypriot authorities believe the frightening scale of capital flight would destroy its banks. Deposit accounts are loaded with foreign money, which in the case of some banks will be taxed at 40%. British and Russian residents are among the most vulnerable and will be looking to squirrel their money out of the country where possible.
Could such tough measures be adopted in other eurozone countries?
There is concern in Spain and Italy that should they need bailout funds Brussels will demand a Cyprus-style upfront payment from bank depositors. There are reports of banks in both countries suffering a flight of funds to safer havens in the eurozone. But the situations are very different. Italy’s banks had a clean bill of health from the IMF this week. Spain’s banks remain in difficulties, but bondholders that have lent banks money will suffer ahead of depositors.
Will tourists face spending limits?
Cyprus desperately needs tourists (though German visitors may get a hard time following Berlin’s refusal to ease the Mediterranean island’s bailout terms). To help tourists and citizens short of cash, the authorities are looking to increase the daily ATM withdrawal limit from €100 to €300.
Are businesses affected?
Large firms must get clearance to pay their workers and must apply for a licence from the central bank to import goods and services. If they have cash in Bank of Cyprus they will lose 40% of their funds over €100,000, while deposits in Laiki Bank will be taxed at 80%. Deposits of more than €100,000 at both banks would be frozen. How the purchase of overseas services will be policed – to prevent phantom transactions siphoning money out of the country – is not known.
How long will capital controls be in place?
The government says they will run for four days. It sounds overly optimistic. There appears to be little reason bank or government finances will be in good enough shape to survive an avalanche of money escaping to other jurisdictions.
Has it happened before?
Iceland is the nearest example. After 2008 it imposed strict controls on the movement of money out of the country. In some ways it was in a worse situation than Cyprus. Its banking sector amounted to 10 times GDP compared with eight times in Cyprus (and five times in the UK).
The same controls are still in place five years later. Last year the government passed a bill tightening them. Businesses are furious because few foreign firms will invest in the country. If they make any profit they cannot get their money out. Also, foreign workers are discouraged for the same reason should they decide to go back home and Icelanders who want to work abroad must get clearance from the government.
Is Iceland in a better state now?
In many ways yes. The reconstruction of the banking sector, now just twice the size of GDP, has created more well-capitalised and profitable lenders. The cleanup of the financial services sector has allowed the creation of new banks from the ashes of the old. The economy is growing and resolving other debts related to the banking crash. However, much of the gains followed a depreciation of the currency, which is not something Cyprus can follow while it remains inside the euro.
The crucial debate and vote on the Cypriot deposit levy has been postponed until Tuesday, and the country’s banks won’t open until Thursday
Read more from the original source: Cyprus races to rework savings tax after closing banks till Thursday – as it happened
3,000 military personnel and 250 civil servants protected from tax imposed as part of island’s bailout by EU and IMF
The savings of British military personnel and civil servants in Cyprus are to be protected against a bank levy being imposed as part of the island’s €10bn (£8.7bn) bailout, the government has revealed.
An estimated €2bn of British deposits are held in Cyprus, including accounts for 3,000 military personnel and 250 civil servants. The chancellor, George Osborne, told The Andrew Marr Show on BBC1 on Sunday: “For people serving in our military, people serving our government out in Cyprus – because we have military bases there – we are going to compensate anyone who is affected by this bank tax. People who are doing their duty for our country in Cyprus will be protected from this Cypriot bank tax.”
He said Cypriot banks based in the UK would be unaffected by the 9.9% levy on savings over €100,000. There will also be a 6.75% levy on savings below €100,000 as part of the fifth eurozone bailout, agreed early on Saturday by the European Union and the International Monetary Fund.
The news that Cypriots would have their savings raided to bail out the country’s ailing banks has threatened to reignite Europe’s debt and currency crisis.
Small and medium-scale savers in Greek Cyprus voiced outrage at the one-off tax on deposits. Mounting opposition led to a crucial emergency parliament session on the deal being put off until Mondayin Nicosia.
President Nicos Anastasiades, only in his first weeks in office, warned of a catastrophe if the plan was not accepted as he came under intense pressure from the eurozone and European Central Bank to ensure the levy was enacted.
Cypriot banks are to remain closed for several days following the move, unique in three years of turmoil over eurozone sovereign debt. But the knock-on effect, undermining confidence in pledges from EU leaders that ordinary savers are safe from financial chaos, fed fears of runs on banks in other vulnerable countries, such as Spain and Italy.
Cyprus is the first eurozone bailout to hit savers, breaking repeated vows from politicians, including Anastasiades recently, that such a tax would not happen.
However, it is far from the first time the public has been forced to meet banks’ failings. In Ireland, the taxpayer paid for the colossal costs of bank failure. In Greece last year, private investors were forced to take “haircuts” on their investments in struggling Greek banks. The German government, driving this policy, declared repeatedly that Greece was “unique” and that this would never happen again.
Similar statements about Cyprus were issued at the weekend, despite earlier promises that all European deposits under €100,000 were safe in the banking crisis. A European commission spokesman said that the guarantee applied only to a banking collapse, not to a banking rescue, confirming that small savers’ money was safer in the case of bankruptcy.
The German government and the International Monetary Fund, both drivers of the surprise depositors’ tax scheme agreed early on Saturday in Brussels, voiced satisfaction. The IMF chief, Christine Lagarde, said: “The IMF has always said that we would support a solution that is sustainable, that is fully financed and that appropriately allocates the burden sharing. I believe that the agreed package meets these three objectives.”
But on Sunday in Nicosia, the new Anastasiades government struggled to muster the parliamentary support required to get the bailout package through.
Martin Schulz, head of the European parliament, while agreeing that savers should bear some of the bailout costs, called for changes to exempt those with savings under €25,000.
Sharon Bowles, the Lib Dem MEP who chairs the parliament’s monetary affairs committee and has been closely involved in the euro crisis, was withering. “The single market has been sold down the river for a shoddy price,” she said.
“This grabbing of ordinary depositors’ money is billed as a tax, so as to try and circumvent the EU’s deposit guarantee laws. It robs smaller investors of the protection they were promised.
“If this were a bank they would be in court for mis-selling. The lesson here is that the EU’s single market rules will be flouted when the eurozone, European Central Bank and IMF say so.”
Cyprus is a major haven for the funds of wealthy Russians, with the German intelligence service recently estimating up to €20bn in Russian deposits. Unless they have been part of a recent capital flight, the Russians stand to lose fortunes under the 9.9% levy.
Anatoly Aksakov of Russia’s regional banking association said confidence in the Cypriot banking sector had just been wiped out.
“The Russians have lost €3.5bn in a day,” said Forbes Magazine. The IMF insisted on raiding savers’ accounts to bring down the cost of the eurozone/IMF bailout to €10bn on the grounds that the €17bn needed by Cyprus would raise government debt to unsustainable levels.
The Germans supported the levy to ensure that wealthy Russians contributed and that German taxpayers were not paying out to secure Russian money. And it appears that Anastasiades insisted on spreading the levy to ordinary savers to lower the burden on the wealthy and try to prevent them fleeing Cyprus as a low-tax banking haven.