In a possible redux of the handling of the Cyprus economic crisis from 2013, Greek banks are setting new contingency plans for a possible “bail-in” to avoid collapse. The country may be headed for a full economic collapse, under certain circumstances, and the banks may collude to give well-funded accounts a “haircut,” report banking sources within Greece to the Financial Times.
Greek Banks Move Closer to “Bail-In”
A “bail-in” or “haircut” is a confiscation, a raid, on uninsured consumer funds above a certain threshold to prevent the bank from default. One Greek bank is contemplating withdrawing at least 30 percent of deposit accounts with balances as low as €8,000 Euros. In the Cyprus “bail-in” from March of 2013, the bail-in was on all uninsured deposits over €100,000.
“It [the haircut] would take place in the context of an overall restructuring of the banking sector once Greece is back in a bailout programme,” said one source with knowledge of the situation. “This is not something that is going to happen immediately.”
No official decision has been made on a course of action, but this contingency may come to pass if the ECB pulled loans or declares the country insolvent. Currently, as in Cyprus, all bank deposits in Greece are guaranteed up to €100,000, but the country’s deposit insurance has dwindled down to as little as €500 million. This would not cover the banks in a collapse.
“It makes sense for the banks to consider imposing a haircut on small depositors as part of a ‘recapitalization’. It could even be flagged as a one-off tax,” said one informed Greek economic analyst.
A public referendum is set for Sunday, as citizens can currently only collect €60 daily. The outcome may decide what Greece and its banks do next. This follows recent results in well-funded Austria showing over 250,000 Austrians signing a petition to secede from the E.U. within one week’s time.
Is the “bail-in” policy ethical on the part of the banks? What should be done to protect citizen’s rights and funds? Share and comment below.