Connect to share and comment

How to tell if Cyprus is a problem for the European banking system

In the coming days, there will be more news about whether "contagion" channels have been re-opened, but the situation in Cyprus is far from rosy.

Cyprus economic situation 3182013Enlarge
Cypriot security guards stand outside the parliament building in Nicosia, Cyprus, on March 18, 2013. Cypriot President Nicos Anastasiades is battling euro zone demands that all bank customers in Cyprus pay a one-off levy as part of the bailout plan sponsored by the EU and IMF. (Yiannis Kourtoglou/AFP/Getty Images)

The decline in European stocks and the euro today, post-Cyprus, is an obvious outward sign of nervousness.

In the coming days there will be more news about whether "contagion" channels have been re-opened and whether concerns about Cypriot banks have spread to other peripheral nations.

Lorcan Roche Kelly, an analyst at Trend Macrolytics, has a note out arguing that a wider panic is unlikely, but that more information will be available in the days ahead.

He writes:

The precedent aside, there is little risk of a bank run in other peripheral euro area nations. Cyprus is viewed as being sufficiently unique by other peripheral depositors — the Russian mobster money-laundry service story is well known in Europe — to allow this to pass without too much immediate contagion risk.

Even if there is such a risk, Jörg Asmussen — a German representative on the ECB's Governing Council, who had a leading role in negotiations of the deal — said that the European Central Bank stands ready to provide support to any euro area banks through normal monetary operations and national central bank emergency liquidity assisstance (ELA).

We can easily monitor if either of these promises by Asmussen are called upon by European banks. There is a normal liquidity operation due to be allocated on Tuesday, with all operations so far this year in a tight range from €124 billion to €132 (~ $160 billion) . The overnight liquidity Marginal Lending Facility operations will also be an early indicator of stress.

•  If ELA is called on in any major way, we will see it in the weekly ECB financial statement. Unfortunately, any moves this week will not be reflected until the following Tuesday.

For more real-time analysis, follow Lorcan on Twitter.

More from our partners at Business Insider:

Business Insider: Ex-Apple President: Apple needs to be more like Microsoft

Business Insider: Police charge ten in world's most expensive car crash

Business Insider: Welcome to the town where two teen football stars thought they could get away with rape

Business Insider: Report: There are already plans to revise the Cyprus Bank Tax

Business Insider: VCs are throwing money at these 10 enterprise startups

Original Source URL: 
http://www.businessinsider.com/heres-how-to-tell-if-cyprus-is-causing-a-problem-to-the-european-banking-system-2013-3

http://www.globalpost.com/dispatch/news/business/global-economy/130318/cyprus-debt-crisis-euro-zone-economy-political-risk-aid