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Fairness and Reflexivity in the Cyprus Bail-In

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  • Zenios, Stavros A.

    (University of Cyprus and University of PA)

Abstract

The Cyprus debt crisis provides some unique lessons on crisis management. By the time an assistance program was agreed with the Troika, the problem had become so complex that a depositor bail-in was implemented. This was a policy first for Eurozone and is now becoming a blueprint for dealing with future banking crises. This paper examines the events for the one-year period before the two eurogroup meetings on Cyprus on 17 and 25 March 2013 and the resulting resolution of the two systemic banks of the country with depositor bail-in. We show how delays in dealing with the crisis exacerbated the problem but also how the tools brought in to solve the problem created significant adverse side effects. Available evidence questions the validity of confidential studies guiding the policy decisions on depositor haircut and argues that the implemented bail-in violated international principles of fairness.

Suggested Citation

  • Zenios, Stavros A., 2014. "Fairness and Reflexivity in the Cyprus Bail-In," Working Papers 14-04, University of Pennsylvania, Wharton School, Weiss Center.
  • Handle: RePEc:ecl:upafin:14-04
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    File URL: http://fic.wharton.upenn.edu/fic/papers/14/p1404.htm
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    Cited by:

    1. Andrea Consiglio & Stavros Zenios, 2015. "Risk profiles for re-profiling the sovereign debt of crisis countries," Journal of Risk Finance, Emerald Group Publishing, vol. 16(1), pages 2-26, January.
    2. Sofronis Clerides, 2014. "The Collapse of the Cypriot Banking System: A Bird’s Eye View," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 8(2), pages 3-35, December.
    3. Athanasios Orphanides, 2014. "The Euro Area Crisis: Politics over Economics," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(3), pages 243-263, September.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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