Thursday Reads: Banks Reopen in Cyprus; An End to “Too Big to Fail” Banks (?); Vagina-Phobia; and Much More

Banks reopen in Cyprus and media jostle to get the best view – posted by Joe Parkinson (@JoeWSJ)

Good Morning!!

The banks have opened in Cyprus with controls on how much depositors can withdraw.

Joe Weisenthal posted updates at his Business Insider blog:

At 6:00 AM ET, banks in Cyprus reopened their doors for the first time since March 16.

Wall Street Journal’s Joe Parkinson reports that only eight people are being allowed in at a time at one Bank of Cyprus branch.

However, the crowds have been orderly.

Everyone is wondering whether there will be a huge run on the banks.

So far? Not yet.

This is likely due to a set of capital controls that have been imposed on the banks.  Specifically, Cypriot depositors cannot withdraw more than 300 euros per day from any one bank.  Also, checks cannot be cashed.

These controls will be in place for seven days.

See more Twitter updates and photos at the link. International Business Times has some details about the capital controls that are supposed to prevent bank runs. In addition to the withdrawal limit, depositors can’t cash checks unless they come from another country.

In the meantime, non-cash payments or money transfers are banned unless they are related to a number of conditions.

These conditions include commercial transactions, payroll, living expenses and tuition fees.

If commercials transactions are less than €5,000, there are no restrictions, but payments above this amount and up to €200,000 will be subject to a 24-hour decision making process, in order to determine whether the liquidity of the bank would be able to incur such a withdrawal.

Transfers for paying employees will also still be allowed but relevant documents would have to be presented in order to prove the money is being used to pay staff.

Transactions on credit or debit cards are also capped at €5,000 euros per month.

According to the Wall Street Journal, some large depositors seemingly had advance knowledge of what was going to happen in Cyprus and moved their money out of the country weeks before the crisis.

The chairman of the Committee for Institutions in the Cypriot Parliament, Deputy Dimitris Syllouris, said he had submitted a letter to the Central Bank of Cyprus demanding an investigation into account holders who moved large sums of cash out of the country in the weeks ahead of Cyprus’s chaotic bailout talks…

He said he had received information about individuals and businesses moving money out of Cyprus weeks ahead of the bailout deal—a move that wouldn’t be illegal but could imply that some depositors had warning that negotiations for a bailout could, for the first time in the financial crisis that has rattled the euro zone, take a cut out of regular bank deposits.

Asked whether his suspicions focused on one specific group of depositors, he said “politicians, all sorts of people, and bankers themselves are no better.”

That figures…

Outflows from Cyprus were increasing from moderate levels from January until March 15, the officials said. Last week—especially after March 19, when the Cypriot Parliament rejected the first bailout deal that would have imposed a one-time levy on large deposits—the outflows under the central bank’s exemptions went up significantly, they said.

Several hundred million euros, but less than a billion euros, left the country despite the bank closures, according to one official.

At Bloomberg, Clive Crook says Cyprus’ Plan B is Still a Disaster.

The new deal has removed the craziest part of the agreement reached March 16 — the plan to default on deposit insurance. Let’s not dwell any further on that insanity. But the new plan still has features that, seen in any other context, would surely arouse surprise.

For instance, the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund wanted to be sure that the new debt Cyprus is about to take on will be sustainable — meaning, presumably, that Cyprus will be able to repay it. Yet, by writing down high- value deposits, the revised plan will also cause a sudden contraction of the Cypriot banking system, and thus of the whole Cypriot economy, which depends on banking to an unusual degree.

He concludes that,

Bailout fatigue says: “The Cypriots got themselves into this mess, and they should get themselves out. We’ll lend them a bit more, but only if we’re sure they’ll pay us back.” Cyprus didn’t get itself into this mess. It joined the euro system in 2008 with low public debt and a clean bill of health from EU governments (back then, not a word was said about shady Russians). Its banks are in trouble not because they accepted too many overseas deposits but because they bought too many Greek bonds — an investment sanctified by international banking rules (which called such investments riskless) that was destroyed by the EU’s ham-fisted resolution of Greece’s threatened default.

Europe’s sense of “we’re all in this together” seems to have evaporated entirely. Now one has to ask not merely what the euro is for, but what the EU itself is for.

Back in the U.S.A.,

Simon Johnson has an interesting post at the NYT’ “Explaining the Science of Everyday Life” blog: The Debate on Bank Size Is Over.

While bank lobbyists and some commentators are suddenly taken with the idea that an active debate is under way about whether to limit bank size in the United States, they are wrong. The debate is over; the decision to cap the size of the largest banks has been made. All that remains is to work out the details.

To grasp the new reality, think about the Cyprus debacle this month, the Senate budget resolution last week and Ben Bernanke’s revelation that — on too big to fail — “I agree with Elizabeth Warren 100 percent that it’s a real problem.”

Policy is rarely changed by ideas alone and, in isolation, even stunning events can sometimes have surprisingly little effect. What really moves the needle in terms of consensus among policy makers and the broader public opinion is when events combine with a new understanding of how the world works. Thanks to Senator Sherrod Brown, Democrat of Ohio; Senator Warren, Democrat of Massachusetts, and many other people who have worked hard over the last four years, we are ready to understand what finally defeated the argument that bank size does not matter: Cyprus.

I can’t briefly summarize the gist of Johnson’s piece, so if you’re following this story, please read the whole thing. Could he really be right about limits on “to big to fail or prosecute banks.” I sure hope so!

In other news,

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