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Lessons from the Cypriot Deposit Haircut for EU Deposit Insurance Schemes

  • Jan Kregel

In March of this year, the government of Cyprus, in response to a banking crisis and as part of a negotiation to secure emergency financial support for its financial system from the European Union (EU) and International Monetary Fund (IMF), proposed the assessment of a tax on bank deposits, including a levy (later dropped from the final plan) on insured demand deposits below the 100,000 euro insurance threshold. An understanding of banks’ dual operations and of the relationship between two types of deposits—deposits of customers’ currency and coin, and deposit accounts created by bank loans—helps clarify some of the problems with the Cypriot deposit tax, while illuminating both the purposes and limitations of deposit insurance.

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Paper provided by Levy Economics Institute in its series Economics Policy Note Archive with number 13-04.

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Date of creation: Apr 2013
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Handle: RePEc:lev:levypn:13-04
Contact details of provider: Web page: http://www.levyinstitute.org

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