What lead to the postponement was the panic that occurred when it was announced that the deposits were to be confiscated so as to recapitalize the banking system.
As everyone has known since they first opened up a bank account with deposit insurance, governments guarantee that the depositor will get 100% of their money back up to a pre-set limit regardless of how the bank performs financially.
At the urging of the EU and IMF, Cyprus was not only going to unilaterally end this guarantee, but it was also going to seize (they called it a "tax") more than 5% of the depositors' money to cover the banks' bad financial performance.
This unilateral removal of deposit insurance will lead to a much higher level of instability in the global financial system. By putting back on depositors the burden of determining if a bank is solvent, the EU and IMF have reintroduced bank runs.
Why, in the absence of ultra transparency under which banks disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details, there is no way to tell which banks are solvent and which are not.
It therefore becomes prudent for a depositor to a) reduce their balances at a bank and b) run to the bank to withdraw their money on any rumor indicating the bank may not be solvent.
Of course, there is a certain irony in the EU and IMF compelling Cyprus to end its deposit guarantee and Cyprus' politicians trying to save 8,000 banking jobs (aka, the bonuses of the Cyprus bankers).
The EU and IMF were advised by bankers who were looking to preserve their bonuses and continue to socialize the losses in the financial system.
The irony is that the only banks that will be trusted going forward will be those that provide ultra transparency and show the world that they have nothing to hide.
As reported by the Guardian, the reaction to the announcement was:
People rushed to banks and queued at cash machines that refused to release cash as resentment quickly set in. ... The move in the eurozone's third smallest economy could have repercussions for financially overstretched bigger economies such as Spain and Italy.
People with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, Eurozone officials said, while those with greater sums will lose 9.9%. ...
The prospect of savings being so savagely docked sparked terror among the island's resident British community....
"There's a run on banks. A lot of us are really panicking. The big fear is that there soon won't be cash in ATMs," said Arlene Skillett, a resident in Nicosia. "People are worried that they're automatically going to lose ten present [of their savings] in deposit accounts. Anastasiades won elections saying he wouldn't allow this to happen."
She said a lot of elderly Britons had transferred savings to the island when they had decided to retire there. "Nobody can understand how they can do this – isn't it illegal? How can they just dock money from your account?" she asked.
In the coastal town of Larnaca, Cypriots described how they had queued from the early hours in the hope of withdrawing deposits from banks. "A lot of us just can't believe it," said Alexandra Christofi, a divorcee in her 40s who said she had rushed to her bank before doors even opened at 6am.
"I had put my money there for a rainy day. It's absolutely all I have and I cannot understand how Cyprus is being singled out. Other EU countries got bailouts and we're only in this position because we supported Greece," she said, referring to the massive losses the Cypriot banking system suffered as a result of Greece's restructuring its debt last year. "Where is the fairness in that? Where is the solidarity and support that is meant to be the reason why we are all unified in this common currency in the first place?"
Maria Zembyla, from Nicosia, said the levy would make a "big dent" in her family's savings and "erode the investor confidence". "It is robbery. People like us have been working for years, saving to pay for our children's studies and pensions and suddenly they steal a big share of this money. Russians that currently keep the economy afloat will leave the country along with their money," she added.
Howard Skelton, in Limassol, said: "The only people who will benefit in the long term are the banks. It will be many years before the man in the street begins to feel any benefit from this bailout. The sooner I can return to the UK the better."...
Depositors started queuing early to withdraw their cash, and protestors gathered outside the presidential palace. "I'm extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans," said British-Cypriot Andy Georgiou, 54, who returned to Cyprus in mid-2012 with his savings.
"They call Sicily the island of the mafia. It's not Sicily, it's Cyprus. This is theft, pure and simple," said a pensioner.
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