Regarding Cyprus, recently I heard someone claim that depositors are not creditors of a bank despite the fact that deposits are bank liabilities. This is bollocks. Depositors are indeed creditors, particularly in Europe where they are often legally pari passu with other unsecured creditors. Below is an extract from a presentation given by an ECB expert on bank resolution schemes addressing who gets preferential treatment in carving up the losses. The full PDF is linked below.
I think this is highly relevant to what is occurring in Cyprus
Depositor preference rule.
So, the first topic I would like to address is the debate surrounding the introduction of a depositor preference rule in insolvency. As you know, a depositor preference rule requires that in the insolvency of a bank the claims o...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.