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Lessons from the Cypriot Deposit Haircut for EU Deposit Insurance Schemes

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  • Jan Kregel

Abstract

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.

Suggested Citation

  • Jan Kregel, 2013. "Lessons from the Cypriot Deposit Haircut for EU Deposit Insurance Schemes," Economics Policy Note Archive 13-04, Levy Economics Institute.
    • Handle: RePEc:lev:levypn:13-04
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    Cited by:

    1. Theo Kiriazidis, 2017. "The European Deposit Insurance in Perspective," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 112, Hellenic Observatory, LSE.
    2. Domenica Tropeano, 2020. "Does the BRRD affect the retail banking business model in the Euro area?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 49(2), July.
    3. Kiriazidis, Theo, 2017. "The European deposit insurance in perspective," LSE Research Online Documents on Economics 84107, London School of Economics and Political Science, LSE Library.

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