Bank of Cyprus’s Customers May Lose as Much as 60% on Deposits

The financial collapse of Cyprus Popular Bank has declined the trust in the banking industry. Many people will be losing a portion of their hard earned money as part of a deal to prevent the country from going bankrupt. Customers of the Cyprus will lose as much as 60% of their deposits that exceed 100,000 euros or $128,000 in US currency. Of the 60% 37.5% of customer deposits will be converted into shares with full voting rights and future dividend while the remaining 22.5% will be frozen. The deposits of customers that will be frozen to ensure that lenders can recapitalize will receive a 10% interest rate above the current interest rate and will be released soon. Cyprus will also be divided into good and bad banks, deposits of less than 100,000 euros will go to the good banks and deposits of more than 100,000 will go to the bad bank.

With the failure of major banks, depositors will lose their trust in the banking industry. A similar situation with the failure of banks led to the great depression and this situation could lead to a similar downfall of the country. Banks should take more precautions and have more effective back up plans if situations like the financial collapse of Cyprus Popular Bank arise.

Written by: Wilson Tang

Source:

http://www.bloomberg.com/news/2013-03-30/bank-of-cyprus-s-customers-may-lose-as-much-as-60-on-deposits.html

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