Lenders lose out in Cypriot bank raid
SHARES in British banks were hammered yesterday amid fears the EU raid on accounts in Cyprus could trigger a run on lenders across Europe.
The Cypriot central bank fuelled concerns last night by announcing the country’s banks would remain closed until Thursday at the earliest.
The country has been told it must accept the punishing levy if it is to receive an £8.7bn bailout from Brussels.
Politicians have had to close the banks for an extended period after a delayed vote – expected later today – on the deal in the Cypriot Parliament. But last night analysts warned they would ‘undermine trust’ in the banking system and cause ‘widespread panic’ among savers.’
Under the plans, savers with money i n bank accounts in Cyprus will lose 9.9pc of all deposits over €100,000 and 6.75pc on smaller amounts.
Previously savers assumed they were insured on losses up to €100,000 under the deposit protection scheme.
Fears that savers could face swingeing taxes in the event of future bailouts has raised the spectre of a run on banks in struggling economies such as Spain and Portugal.
Analyst Gary Greenwood from Shore Capital said: ‘This seems extremely short-sighted, in our view, running the risk of wide- spread panic among depositors with savings tied up in weaker European banks.’
Barclays ( down 14.1p at 305.95p) and Royal Bank of Scotland (down 10.6p at 297.3p) were among the biggest fallers in the FTSE 100, with shares plunging by around 4pc. Lloyds also fell by 0.67p to 49.85p.
Barclays said it has no branches or cash machines in Cyprus, but has £23bn of loans and deposits in Spain, which is in the grip of a severe economic crisis, and a large high street arm in troubled neighbour Portugal, with a total exposure of £7.9bn.
Ros Altmann, a former Downing Street policy adviser, said: ‘For policymakers to insist that Cyprus confiscate small savers’ bank deposits in order to save its banks makes a mockery of depositor protection schemes everywhere and runs the risk of bank runs across Europe.’
Last night, ratings agency Moody’s warned the measures could have ‘negative implications’ for the credit worthiness of banks across Europe, raising the prospect of further downgrades.
It said the bank tax ‘signals euro area policymakers’ willingness to risk triggering wider financial market disruptions in pursuit of other policy goals’.
Like Barclays, RBS has minimal exposure to Cyprus but has £11.8bn – primarily in loans – tied up in Spain and £5.8bn in Italy.