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Bernanke: Cyprus crisis not a major risk to US

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(Globalpost/GlobalPost)

US central bank chief Ben Bernanke said Wednesday that the Federal Reserve was keeping an eye on the Cyprus crisis but that it was not so far seen as a danger for the United States.

"We are monitoring very carefully, but at this point we are not seeing a major risk to the US financial system or the US economy," the Federal Reserve chairman told a press conference.

He said if potential bank runs in Cyprus -- where the banks remain closed until next week -- spread to other countries, it could pose a problem, but there is no evidence yet of that.

"It's a difficult situation in Cyprus," he said, after the 10 billion euro ($13 billion) EU-IMF bailout of the island country was left hanging due to the parliament's rejection of a heavy tax on bank deposits that was a key part of the plan.

"There are a lot of uncertainties and difficulties, and there are questions about the way Cyprus is treated -- what implications that might have for other countries and the like. So it does have some consequence."

However, Bernanke added, "I don't think the impact has been enormous" on markets overall, pointing to the rebound Wednesday in US and European markets.

Speaking to reporters after a policy meeting of the Federal Open Market Committee, Bernanke stressed he was not part of the discussions on how to resolve Cyprus's difficulties.

"It's a difficult problem, because the country faces both fiscal and bank capitalization issues. And you've seen there's political stress in terms of trying to figure out how they're going to meet the demands of the Eurogroup for contributing to their rescue."

He said the bank deposit tax urged by the European Commission and the International Monetary Fund, and now rejected by Cypriot legislators, presented certain risks, "besides the equity issue of taxing lower-income people."

"There is the issue of setting a precedent that might reduce confidence in banks in subsequent periods," he said.

However, he added, "I think the issue they face is that there's a pretty big hole, a financial hole... So they're looking for resources where they can find them."

"We hope that the Europeans will come up with an efficient and equitable solution."

pmh/vs

http://www.globalpost.com/dispatch/news/afp/130320/bernanke-cyprus-crisis-not-major-risk-us-0