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Ο υπερδανεισμός και η βιωσιμότητα του χρέους

Posted by (Author) on April 16th, 2014 - 44 Comments
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Παρόλο που, όπως είναι γνωστό, έχουν πληγεί σημαντικά οι καταθέσεις στις δύο μεγαλύτερες τράπεζες της Κύπρου μετά την απόφαση του Eurogroup τον περασμένο Μάρτιο, εκείνο που δεν έχει γίνει αρκετά αντιληπτό είναι οι επιπτώσεις από τις υποχρεώσεις των τραπεζών που προκύπτουν από το τεράστιο ύψος, και πλήρως δυσανάλογο εν σχέση με το μέγεθος της Κυπριακής οικονομίας ποσό ξένων καταθέσεων που παραμένει, όπως επίσης και από τον δανεισμό μέσω του ELA της πρώην Λαϊκής που μεταφέρθηκε στην Τράπεζα Κύπρου (που είναι κατά κύριο λόγο ο λογαριασμός που μας έμεινε από εκροές δισεκατομμυρίων εκτός Κύπρου και που πρέπει τώρα να πληρώσει ο φορολογούμενος Κύπριος πολίτης).  Οι ξένες καταθέσεις το τέλος Φεβρουαρίου 2013 λίγο πριν το bail-in ανέρχονταν σε περίπου €25 δις. εκ των οποίων €21 δις. από πολίτες που διαμένουν μόνιμα εκτός Ευρωπαϊκής Ένωσης  και €4 δις. από Ευρωπαίους πολίτες  (Source: Monetary and Financial Statistics Feb. 2013, Central Bank of Cyprus).  Συμπεριλαμβανομένου και του ELA της Λαϊκής (περίπου €10 δις.) οι Κυπριακές Τράπεζες χρηματοδοτούνταν από ξένες καταθέσεις του ύψους των €35 δις περίπου.

Η χρήση της υπέρογκης ρευστότητας που προέκυψε από ξένες αλλά και ντόπιες καταθέσεις, ως επίσης και από τις συνεχείς περίπου εκδόσεις νέων μετοχών και αξιόγραφων που επιδίδονταν συστηματικά οι Τράπεζες μας, όπως είναι γνωστό, ήταν μη παραγωγικές, όπως η αγορά Ελληνικών Ομολόγων, εξαγορές τραπεζών στην Ρωσία, Ουκρανία και Ελλάδα και πολλές άλλες αλόγιστες χρήσεις και επενδύσεις με μικρή απόδοση που εγκυμονούσαν κινδύνους για την εσωτερική οικονομία.  Επιπλέον, τα δάνεια δίνονταν με ραγδαίο ρυθμό και σχεδόν με αποκλειστικό κριτήριο τις εμπράγματες εξασφαλίσεις.  Η ικανότητα αποπληρωμής ήταν και παραμένει περιορισμένη δεδομένου ότι με κριτήριο την αξιολόγηση βιωσιμότητας (που σπάνια εφάρμοζαν οι Τράπεζες) πολύ λίγα από αυτά τα δάνεια θα δικαιολογούνταν και επομένως δεν θα εξυπηρετείτο η άμεση ανάγκη να μετατραπούν οι καταθέσεις σε στοιχεία ενεργητικού.

Η προτεραιότητα που έθεσαν οι πολιτικοί μας ηγέτες για τη διαφύλαξη των ξένων καταθέσεων είχε ως αποτέλεσμα τη διατήρηση των συνολικών υποχρεώσεων των Τραπεζών προς ξένους σε ένα ύψος που είναι περίπου το διπλάσιο του Ακαθάριστου Εγχώριου Προϊόντος (GDP) της χώρας.  Αυτό, σε συνάρτηση με τη συνεχή επιδείνωση του ενεργητικού των Κυπριακών Τραπεζών, μας έχει βάλει σε μια πορεία που οδηγεί σχεδόν ανεπανόρθωτα προς την οικονομική εξάρτηση των Κύπριων.  Ο υπερδανεισμός που επέφερε στους Κύπριους πολίτες και επιχειρήσεις η μη σωστή επιτήρηση των Τραπεζών και η ανεύθυνη τοποθέτηση της υπέρογκης ρευστότητας στους ώμους των ανύποπτων Κυπρίων πολιτών και επιχειρηματιών χωρίς να λαμβάνεται υπόψη το κριτήριο της ικανότητας αποπληρωμής είχε την περαιτέρω αρνητική συνέπεια ότι κατέστησε τις επιχειρήσεις αλλά και τους ιδιώτες μας μη ικανούς να λάβουν περαιτέρω χρηματοδότηση.  Και αυτό σε μια εποχή που η επανεκκίνηση της οικονομίας μέσω επενδύσεων και δανείων προς χρηματοδότηση βιώσιμων έργων είναι απόλυτα αναγκαία.

Και αφού η αναγνώριση των καταθέσεων συνεπάγεται και ταυτόχρονη αναγνώριση των οφειλών από τους δανειζόμενους, πολλοί εκ των οποίων χωρίς καμιά διαγραφή δεν θα μπορέσουν ποτέ να αποπληρώσουν τα χρέη τους, αναπόφευκτα, θα μας βάλει σε μια μαύρη εποχή όπου πολύ πιθανόν θα είμαστε δέσμιοι των ξένων στην ίδια μας την χώρα. Η εξαγορά σε εξευτελιστικές τιμές της υποθηκευμένης γης και των κτιρίων μας από ξένους και αντισταθμιστικά ταμεία (Hedge Funds) θα μπορεί να μας πάρει πίσω στην εποχή των Φεουδαρχών.

Τον Μάρτη του 2013 στις Βρυξέλλες βρεθήκαμε μπροστά σε ένα σταυροδρόμι. Οι στρατηγικές επιλογές της πολιτικής μας ηγεσίας ήταν, και εξακολουθούν να είναι, μόνο δύο.  Δυστυχώς φαίνεται ότι η πολιτική ηγεσία μας, μαζί με κάποια οργανωμένα η μη ειδικά συμφέροντα (όπως κάποιων δικηγόρων, λογιστών και τραπεζιτών αλλά και πολιτικών – αυτοί δηλαδή που είναι κατά γενική ομολογία οι βασικοί υπαίτιοι της καταστροφής) έχουν σιωπηλά συνωμοτήσει να ακολουθήσουμε τον δρόμο που οδηγεί στην διαφύλαξη των ξένων καταθέσεων (των πελατών τους δηλαδή) και την εξάρτηση των υπερχρεωμένων Κύπριων πολιτών σε μια νέα δυναστεία οικονομικής εξουσίας.

Πολύ απλά η κυβέρνηση βρέθηκε αντιμέτωπη με το δίλημμα σε ποίο να πάρει τον λογαριασμό της καταστροφής.  Στους ξένους καταθέτες όπως έχει κάμει η Ισλανδία ή στον Κυπριακό λαό;  Αφού όπως φαίνεται, ήταν αδιανόητο οι ίδιοι περίπου παράγοντες που έχουν πείσει τους ξένους να φέρουν τα λεφτά τους «ασφαλισμένα» στην Κύπρο να γίνουν τώρα οι συντελεστές που τα διαγράφουν ή τα φορολογούν, η απόφαση ήταν η μόνη άλλη που απέμενε, δηλαδή να τα φορτώσουν στον υπερδανεισμένο Κύπριο φορολογούμενο.  Στην τελική ανάλυση ίσως ήταν και η μόνη επιλογή που θα μπορούσαν να διαχειριστούν, εφόσον λαμβάνοντας υπόψη το παρελθόν, οι πολιτικοί μας είχαν όλα τα θεατρικά προσόντα να την πλασάρουν στον ανύποπτο κόσμο, αφού κάτι τέτοιο το κάνουν με επιτυχία εδώ και 50 χρόνια.

Το τι δεν υπολόγισαν σωστά όμως είναι ότι η δυνατότητα αποπληρωμής θα είναι σχεδόν ανύπαρκτη δεδομένου του ύψους των χρεών και της φθίνουσας οικονομικής κατάστασης.  Επίσης δεν έχουν λάβει υπόψη ότι η Ευρώπη και το Διεθνές Νομισματικό Ταμείο ουδέποτε θα έβαζαν δικά τους λεφτά για να καταλήξουν με μαθηματική ακρίβεια στους Ρώσους, Ουκρανούς και άλλους που ήταν πεπεισμένοι και συνεχώς μας διαλαλούσαν ότι χρησιμοποιούσαν την Κύπρο για ξέπλυμα χρήματος. Αυτές οι λανθασμένες εκτιμήσεις και τραγικές στρατηγικές επιλογές της πολιτικής ηγεσίας, μας έχουν φέρει αντιμέτωπους με την επικείμενη υποθήκευση του μέλλοντος γενεών Κυπρίων.  Γιατί, τι προοπτική απομένει όταν έχεις να πληρώνεις ένα χρέος που δεν μπορεί να αποπληρωθεί σε μια ολόκληρη ζωή;

Το κυριότερο σημείο που θέλει να θίξει αυτό το άρθρο δεν είναι όμως η αδικία αλλά  ότι πρέπει να γίνει συνειδητό ότι η Κυπριακή Οικονομία όχι μόνο έχει τεθεί σε μια πορεία που οδηγεί σε βαθιά κρίση και όπου οι συνθήκες για επενδύσεις και ανάκαμψη δεν υπάρχουν, αλλά ότι λόγω ανεύθυνων χειρισμών και λανθασμένων πολιτικών αποφάσεων, έχουμε αφήσει μια μαύρη τρύπα ύψους περίπου €20-€30 δισεκατομμυρίων.  Αυτή η τρύπα πρέπει να εξαλειφθεί για να μπορέσει η οικονομία της Κύπρου να ανακάμψει.  Το χρέος που μας έχει απομείνει είναι δυσανάλογα ψηλό σε σχέση με τις ικανότητες των πολιτών και επιχειρήσεων αυτής της χώρας να αποπληρώσουν.  Ας μη ξεχνούμε ότι επί πλέον του τεράστιου ιδιωτικού χρέους που τους αναλογεί θα αποπληρωθεί μέσω φορολογιών και περικοπών από τους πολίτες και το δημόσιο χρέος.  Αν συνυπολογιστεί μαζί το ιδιωτικό και το δημόσιο χρέος θα υπερβαίνει τα 300% του Ακαθάριστου Ετήσιου Προϊόντος.  Δηλαδή είναι μη βιώσιμο.  Συχνά άκουμε την Κυβέρνηση να καυχιέται ότι ανέκοψε την χρεοκοπία του κράτους.  Ίσως αυτό είναι σωστό, αλλά δεν έχει καμία αξία αν το κατάφερε με αντάλλαγμα την χρεοκοπία των πολιτών.

 

* Ο Σαββάκης Κ. Σαββίδης είναι Οικονομολόγος, εμπειρογνώμονας σε θέματα Οικονομικής Ανάπτυξης και Αξιολόγησης Έργων. Είναι πρώην ανώτερος διευθυντής στην Τράπεζα Αναπτύξεως και διετέλεσε τακτικός επισκεπτόμενος καθηγητής στο Harvard University και πιο πρόσφατα στο Queens University, CanadaAuthor page: http://ssrn.com/author=262460.

Categories → Οικονομία

44 Comments
  1. avatar
    KikisM on April 16, 2014 - (permalink)

    Σεβαστές οι απόψεις και η ανάλυση σας , πλην όμως δεν εισηγείστε τρόπους , υπερβασης του υπαρκτού προβλήματος του υπερδανεισμού , και της έλλειψης ρευστότητας.

    Η καπιταλιστική οικονομία έχει λύσεις επι παντός επιστητού , με καθηγητές τους κεντρικούς τραπεζίτες της FED , πού αργά η γρήγορα θα τούς ακολουθήσει η ΕΚΤ. Το πρόβλημα της Κύπρου δεν είναι διφαορετικό από της άλλες χώρες του νότου της ΕΕ. Απλά δεν μπορούν να το λύσουν μόνες τους, αφού οι μηχανές πού τυπώνουν Ευρώ είναι στην Φρανκφούρτη. Αργά η γρήγορα ο Kος Draghi και οι περιξ του θα κόψουν χρήμα. Ηδη προετοιμάζουν το έδαφος , με διαφορετικές συνταγές για διαφορετικές χώρες, με πρόγραμμα ποσοτικής χαλάρωσης.

    Στην περίπτωση της Κύπρου αυτό θα έρθει με αγορά ΑΒS ( Asset Backed Securities ) , π.χ. κακά δάνεια των τραπεζών μας πού θα ελαφρύνουν τούς ισολογισμούς , θα ελαχιστοποιήσουν τις αναγκες τους για νέα κεφάλαια , και θα τούς επιτρέψούν να μειώσουν επιτόκια , να ξαναδανείσουν και να επανεκκινήση η οικονομία.

    Το τύπωμα χρήματος θα επαναφέρει τον πληθωρισμό κοντά στο 2 % με μειωμένο ευρώ , και πιό ανταγωνιστική οικονομία. Πληθωρίζοντας λίγο τις ευρωπαικές οικονομίες μείωνεται και δια της εις άτοπον απαγωγής το δημόσιο χρέος. Αυτό το ξέρει πολύ καλά το ΔΝΤ και η ΕΚΤ.

    Ας μήν τα βλέπουμε όλα μαύρα , μέχρι το τέλος του χρόνου θα ξεκαθαρίσουν πολλά. Και βεβαίως μάθαμε το μάθημα μας , ότι δεν μπορούμε να ζούμε πέρα από τις δυνατότητες μας με δανεικά. Απλά το μάθαμε με σκληρό , και άδικο τρόπο αφού έτσι ηθελαν την συνταγή στούς ασθενείς οι Γερμανοί.

    • avatar
      IoannisTakis on April 17, 2014 - (permalink)

      Συμφωνώ με το σχόλιο.

    • avatar
      Savvakis Savvides on April 17, 2014 - (permalink)

      Ο σκοπός του άρθρου είναι να γίνει σωστή εκτίμηση της φύσης και του μεγέθους του προβλήματος που αντιμετωπίζει η χώρα. Διότι μόνο έτσι θα ξέρουμε που να κοιτάξουμε για αποτελεσματικές λύσεις. Ακούμε συνεχώς ότι πάμε πολύ καλά και χειροκροτούμε τους εαυτούς μας δίνοντας έτσι άλλοθι σε αυτούς που έχουν υποχρέωση να μας βοηθήσουν να βγούμε από την κρίση να το κάνουν. Δείτε παραδείγματος χάριν τις πρόσφατες δηλώσεις του Jeroen Dijsselbloem και της κας Delia Velculescu. Και οι δυο ασχολούνται μόνο με το δημόσιο χρέος αγνοώντας το μεγαλύτερο πρόβλημα που είναι ο υπερδανεισμος του ιδιωτικού τομέα.

  2. avatar
    Stavros Agrotis on April 17, 2014 - (permalink)

    What is tragic is that some of us(a group of friends who are all economists) identified these problems at least as far back as 2011. We also identified the problems of the Cyprus economy beyond the problems of the banks back in 2007.
    We did not do anything special other than looking at the big picture and then zooming in on little Cyprus.
    We sent out signlas but very few professors, economists, bankers and politicians payed any attention.
    Analysis with hindsight is also good as hopefully it teaches us not to repeat the same mistakes in the future ( I have my reservations if this actually happens) but it is more important to be able to predict and prevent.
    This was one of the skills of Mylton Keynes.

    • avatar
      Alexandros on April 17, 2014 - (permalink)

      You mean to say John Maynard Keynes. Milton Keynes is a new city in England named after a village located in the same place that has no relation to the famous British economist born in Cambridge in 1883. JMK became a lecturer in economics, a fellow of King’s College Cambridge, served in the British government and fundamentally changed the nature of economics through his writings and influence on economic policy.

      2011 was probably too late to change the self distractive course of the banking system in Cyprus, prevention in the years 2006-2011 would have been more effective.

  3. avatar
    Alexandros on April 17, 2014 - (permalink)

    This is a serious article, although it contains some important inaccuracies. For example, ELA doesn’t have to be repaid by the Cypriot taxpayer, as long as deposits return to the banking system and BOCY continues to collect from its NPLs, ELA will decline. Have the Greek taxpayers paid 140 billion euros of ELA? Of course not. Greek Taxpayers contributed to the cost of recapitalising Greek banks but not to the repayment of liquidity support. Once confidence returned the withdrawn deposits returned to the Greek banks.
    Frankly, when an article contains such serious inaccuracies it loses credibility.

    • avatar
      Savvakis Savvides on April 17, 2014 - (permalink)

      The point of the article (and for including the ELA) is not whether, given unlimited liquidity ELA will increase and that given normal economic conditions will be expected to begin to decline. Incidentally, one of the points of the article is that we were not granted unlimited liquidity as was the case with other countries (like Greece and Ireland). I even point out in the article why in my opinion our European partners are reluctant to take this extra step for us. I am also fully aware that ELA is a better form of liquidity than deposits as it comes at a lower cost (albeit at huge cost in terms of the collaterals put up for it). That is not the point I am making though. What I want to bring to the fore is the fact that there remains a huge gap between what the banks owe (whether ELA or deposits) and what they have by way of assets particularly in a economy which remains in crutches. We have on the one hand firm deposits and ELA (cast in stone if you like) and on the other fast deteriorating or evaporating assets (loans). This emerging gap, whether it is in the private or public sector, weighs on the Cypriot tax payer all the same. To pretend that the problem is only the €10 billion which we were granted to cater for the public debt is what is inaccurate and myopic given the dire state it leaves the economy and the private sector in particular.

  4. avatar
    Alexandros on April 17, 2014 - (permalink)

    Much better now, thanks. If what you are alluding to in terms of the rapidly deteriorating asset quality is correct, then the bank would be needing more capital soon, hence the taxpayer may (or may not) need to contribute. However, I cannot see any scenario in which the taxpayer will be called on to repay ELA. Theoretically, if a bank became insolvent and were to be liquidated, the assets will be sold to repay the ELA debt to the central bank, anything left over will be used to repay uninsured depositors. This will not happen of course as the bank is systemic and if it fails, the programme, the country and Europe fails.

    • avatar
      A on April 20, 2014 - (permalink)

      Taxpayers paid for ELA once already through the much higher haircut they had to take on their deposits, as ELA did not constitute bail-inable capital. Unless we are really arguing here that a haircut on deposits is not really a tax.

      In addition, the super seniority of ELA to other forms of debt, guarantees, exactly in the way that you describe by the way, that if a Cypriot bank fails, depositors, as the relatively more junior tranche in this story, will have to take losses first (that’s the whole point of debt seniority) so that ELA gets redeemed at par value if possible.

      And many of us are fairly certain that if a Cypriot bank fails Europe will be just fine.

      • avatar
        Alexandros on April 21, 2014 - (permalink)

        It was depositors who paid and NOT taxpayers. In fact only 4% of depositors at the two big banks. Of whom two thirds were non residents, hence, in general, not taxpayers.

        Europe has an effective framework to resolve and/or recapitalise failing banks in an orderly fashion, a disorderly failure of a systemic bank will not be allowed to happen as it is too disruptive.

        • avatar
          A on April 21, 2014 - (permalink)

          A tax that targets a certain portion of the population is still a tax in function, but I do not want to push this point further because I think we both agree on the ‘transfer of wealth’ aspect of the haircut and that is what my original point was about.

          Moving past the tax discussion, and not necessarily in response to anything that you wrote, a possibly additional cost of ELA was the forced marriage of Laiki with BoCY, which does not seem to have been driven by scale economies, but which appears to have been forced upon BoCY because Laiki did not have a strong enough asset base to meet its obligation towards the CBC (or ECB, take your pick). The results of this arrangement are of course there for everyone to see (including investors).

          Also, I get the whole argument about taxpayers not shouldering private banking losses – which was the driving force behind the bail-in, courtesy of the IMF’s reading of the Irish experience- but the acute focus on a certain class of depositors (including firms which simply banked with the wrong institution) is having an adverse effect on the real economy, which could have been somewhat, but of course not completely, ameliorated by a more distributive approach. While we’re on this, and keeping in mind that I only care about the policy ramifications to Cyprus and not the EU as a whole, I said it before and I’ll say it again now, a small haircut on insured depositors would have not caused any bigger of a run than we experienced last year, and would have been just fine. Still haven’t heard of a reasonable argument outlining how this presumably bigger and more devastating bank run would have materialized in Cyprus had the haircut affected depositors across the board. As if the stability of retail deposits up to that point was maintained by a trust in the 100k threshold (that retail depositors probably never heard about), if anything there might have been some trust to the State’s ability to protect banks, and that’s probably gone by now. And who really thinks that your average insured depositor would have found a way around capital controls and into a Swiss account or something to that extent?

          To Alexandros’ last point, the European Union has (presumably) a single supervisory mechanism in place which has not really been put to the test yet, and FOR SURE has nothing that comes remotely close to a resolution authority. In addition, it is not even clear how well the only functional pillar (supervision) will serve the banking sector without a resolution authority and a deposit insurance scheme in place, but I am digressing here. My original comment about the failure of a systemically important bank pertained to Cypriot banks and those banks only and I stand by it because (a) to Europe, BoCY is the furthest thing from systemic in terms of size, interconnections, and even signaling potential in case it runs under, and (b) again, even if a systematically important institution were to fail, the mechanisms are simply not there to guarantee resolution in an orderly fashion.

          • avatar
            Μ on April 21, 2014 - (permalink)

            A,

            In my opinion the forced marriage of Laiki with BOC, was employed in order to protect the insured depositors of Laiki bank. An adequate amount of high quality assets should have been transferred to BOC along with the aforementioned liabilities. I believe that the majority of Laiki’s high quality assets, if not all (as it is stated, signifficantly more than the amount of ELA provided), were pledged as collateral for ELA purposes. Therefore the liability was transferred along with those assets.

            A haircut on insured depositors would have led to a bank run of a greater extend and would have rendered trust return impossible, simply because no one (depositor) would ever trust again a banking system, that is not willing to meet its primary obligations. Insured depositors are not investors. They don’t speculate, they just want a safe place to put their savings.
            Retail depositors are aware of the 100k threshold that’s why most of Cypriots queued at banks, in order to add more beneficiaries to their long term deposits. The average Cypriot insured depositor would have found a way to his/her oven, fridge, garden etc. Even now those places are considered safer by a number of insured depositors that according to recent estimations keep approximately 1 billion euros in their houses.

          • avatar
            Alexandros on April 22, 2014 - (permalink)

            I am afraid your arguments about ELA and tax are flawed at several levels and you continue to dig yourself more and more into a hole. ELA is liquidity support by central banks and is never meant to cover capital shortfalls. (Capital shortfalls in the case of systemic banks have in general been covered by national governments who chose to do so because the social costs emanating from the disruption of a failing systemic bank are higher than the costs of recapitalising it. )

            This is partly why the ECB has a say on the provision of ELA by national central banks, to ensure there is no violation of Article 123 of the Treaty that prohibits monetary financing. Thus, the notion that there could ever have been a haircut on ELA to lessen the depositors’ bail-in is fundamentally flawed. Moreover, even in the hypothetical scenario that the CBC took a loss by writing down ELA, the national government would be called to recapitalise the CBC. Thus, the taxpayers would not have been better off by the haircut in ELA as they would have ended up paying for it in the end.

            There was no tax as such and no tax function, although the bail-in was clearly targeted towards wealthy, mainly non resident, individuals who chose to have their money in our banks.

            BOCY received Laikis assets as well as it’s liabilities, and the ELA transfer did not affect the amount of the bail-in at BOCY. What you do not seem to appreciate is that all other alternatives were worse. There is no evidence whatsoever to support your argument that a broad based tax on deposits would have been preferable, indeed all the evidence we have so far suggests the opposite. Foreign banks would have left Cyprus, and there would have been no trust that any amount of deposits is safe. Stability is now returning, surprisingly quickly, precisely because most depositors were not affected by the bail-in. Those who were affected, however, want to take their money and run. Perhaps you are one of them?

        • avatar
          A on April 22, 2014 - (permalink)

          Alexandre, there is nothing in my writing that suggests that the ELA, or any other form of liquidity support for that matter, was provided to absorb capital losses, nothing at all, so please do not be so quick to lecture me on topics which I am intimately familiar with; focus on the quality of your arguments and save the patronizing tone for people who are receptive to it.

          The discussion is about the bail-in which is a process through which non-equity elements of the bank’s capital structure are being asked to absorb capital losses. Nowhere did I suggest that the ELA should have taken a haircut, but the matter of the fact is that if you allow a super senior part of a bank’s funding structure to grow so immensely significant as the ELA was for Laiki, then at the time of the bail-in the other tranches will take a greater hit.

          And before you again feel tempted to indicate that I am at a complete loss when it comes to comprehending differences between such fundamental concepts as capital support and liquidity support, you should probably read more about the flawed attempts undertaken by the RFC during the Great Depression to help distressed banks by providing liquidity support in the form of senior loans.

          To your other points, the quick (non)answer, because my patience is not unlimited either, is that I am responding to very specific things that were written, such as whether Europe and not its individual constituent members has a resolution authority in place, which is kind of a biggie these days not least for the fact that systemic important banks do not operate solely within national borders, and you seem to be countering with general arguments about why a systemic bank is important, why sovereigns choose to bail-in banks, etc…so let me just assume that we are talking about different things and call it a day.

          Regarding your last comment about whether I am ‘one of them’, that was completely unnecessary, what on earth were you thinking writing something like that? Once again, although you seem to raise valid points in your post you are severely undermining the quality of your arguments with comments like that.

          I think I have already done enough injustice to the quality of the discussion by having to respond to the tenor and not the substance of your comments, so no further comments on my end on this topic.

          • avatar
            Alexandros on April 23, 2014 - (permalink)

            A:

            I confess that in trying to provoke a reply from you, I may have overdone it a little bit!

            But in your initial comment you were less careful than in your subsequent ones, implying that the haircut on deposits would have been lower had ELA been bail-inable.

            And in your subsequent comments, you did support the broad-based tax on deposits, which was indeed supported by some eminent economists, but I happen to know that they had deposits over 100k!

            The tax was indeed put forward by our government in their ill- conceived attempt to protect Russian interests and the big Cypriot law firms. Any serious economist with no financial interests at stake can see that the bail-in was a far superior solution in terms of minimising the impact on confidence, better in terms of creating the right economic incentives (the depositors who paid were those who placed their trust in banks that took excessive risk, hence it will encourage uninsured depositors to be more careful) and more equitable (I am sure you know that a flat tax structure is not equitable). That is why the bail-in was strongly supported by the IMF from the very beginning.

          • avatar
            Savvakis Savvides on April 23, 2014 - (permalink)

            Dear Alexandros,

            This is the first time I read anywhere in Cyprus what should have been obvious to all but especially economists, when you say “The tax was indeed put forward by our government in their ill- conceived attempt to protect Russian interests and the big Cypriot law firms.” Maybe there is still hope… Thanks for stating the truth out loud! That is all I was trying to do as well. Maybe more people will muster the courage to speak their mind out loud with no fear or worse, in the hope that they will one day be rewarded by their silence.

  5. avatar
    Stavros Agrotis on April 17, 2014 - (permalink)

    Thank you Alexandre for the Keynes correction. This is what happens when you are multitasking As my teachers used to say it is to test if the readers of Stockwatch are awake.

  6. avatar
    Aristides on April 17, 2014 - (permalink)

    συνολικές καταθέσεις 42 δις
    δανεια ιδιοτών 63 δις
    χρέος Κ.Δ. 24 δις
    ΕΛΑ 11 δις
    εγγυήσεις ΚΔ 2 δις
    αρα ελλειμα 58 δις

  7. avatar
    Αγοραίος on April 17, 2014 - (permalink)

    Ο κος Σαββίδης αυτοπροσδιορίζεται ως οικονομολόγος. Προσπάθησα να βρω το βιογραφικό του να δω τις σπουδές του αλλά εις μάτην. Οι εμπειρίες του φαίνεται να περιορίζονται στην αξιολόγηση έργων.

    • avatar
      A on April 20, 2014 - (permalink)

      On this forum, people are defined mostly by what they write. The article indicates that the author is motivated by a desire to understand/describe an important economic phenomenon and has the capacity to articulate his thoughts in a professional manner. Your comment speaks of petty motivations and of some sort of underdeveloped ability to use a search engine.

  8. avatar
    Savvakis Savvides on April 18, 2014 - (permalink)

    Έχω προβληματιστεί αν έπρεπε καν να απαντήσω το δυσφημιστικό και κακόβουλο σας σχόλιο. Δηλαδή, έχετε διαβάσει το άρθρο μου και το μόνο σχόλιο που είχατε να κάνει είναι ότι δεν σας φαίνεται ότι είμαι οικονομολόγος; Αφού σας ενδιαφέρουν τόσο πολύ οι σπουδές που έκαμα, αν θέλετε να μου στείλετε ένα email με το πραγματικό σας όνομα, μπορείτε να περάσετε να ελέγξετε τα διπλώματα μου. Και μια και είστε ειδήμονας στα οικονομικά, από ποτέ έπαψε το cost-benefit analysis να είναι μέρος της οικονομικής επιστήμης;

  9. avatar
    Andreas Sergides on April 18, 2014 - (permalink)

    I had the good fortune to meet Savvakis Savvides and I have great respect for him as a person and as an economist. I entirely agree with his analysis and conclusions , however much they may be disagreeable to Agoreos, who prefers to hide behind pseudonims.

  10. avatar
    Andreas Sergides on April 19, 2014 - (permalink)

    What happened to Cyprus is part of the wider global financial crisis initiated by the sub-prime housing lending in the United States. Since 2008 the selling of toxic derivatives has spread the disease to Europe.A quotation from the great Ghandi is most pertinent.”There is enough in the world to meet everybody’s need but not enough to meet everybody’s greed”.I, personally tend to agree with Cambridge professor Ha_Joon Chang who claims that free market economics might be good for the individual but not necessarily for society as a whole. More Government intervention and supervision might have prevented this international financial crisis from developing into such nightmare. Mr. Savvides please come up with a further article suggesting ways for emerging from this crisis. Perhaps the Government could buy the toxic loans with help at European level?

    • avatar
      Savvakis Savvides on April 19, 2014 - (permalink)

      Dear Andreas,

      Thank you for reading and finding my article interesting (and your kind words). I only had the truth in mind when I wrote this and decided to publish it, according to some of my close friends, at great personal cost. The truth needs to come out and we should properly assess our situation in order to come up with effective solutions. People should stand up for what they think and say it without fear or shall we say, not shy away from doing so in the hope that they may gain something from “behaving as expected by some important others”.

      I had many recommendations regarding the crisis and started writing about them even before the crisis. See for example my article in my on “Corporate lending and the assessment of credit risk”, “Financial Markets, Bloated Governments and the Misallocation of Capital” and the “The Rebuilding of the Cyprus Economy” which I started writing on 25th March 2012. I have made number of recommendations and elaborated them to Ministers, leaders of Political parties and even the President. I am afraid they all fall on deaf ears.

      There is no easy way out of the predicament we have put ourselves in. Wolfgang Schauble when he stated that the choice for Cyprus politicians was clearly put to our leaders as “either we take the bill of the crisis to a few Russians who have been benefitting from using our loose regulatory controls and extremely low taxation or to future generations of Cypriots”. We all know what the decision of our politicians was. Now it is too late for having a clean slate (like in Iceland) which would have enabled us to rebuild our economy on sound foundations. But still, there are a number of things we can do to ease the situation. Some of these I wrote about in a recent article called “The Pursuit of Economic Development” which will be published in the next issue of the Journal of Project Finance and Investment Analysis. I copy the abstract of this paper below:

      The article poses the question of what is economic development and how it should be pursued. In the aftermath of the Cyprus bail-in and the blanket approach of the Government to attract foreign investment the author reminds that failed projects do not promote the cause of sustainable economic development. The point is also made that although cost benefit analysis and risk analysis can indicate viable capital investment projects (public and private), one should bear in mind that a developmental project should be both viable financially (from the Owner’s and Bank’s perspective) but also from the point of view of the Economy. Special concessions, subsidies, relaxations and tax exemptions made by a Government over-eager to attract foreign investment may indeed make a financially viable project non-viable from the Economy’s perspective. In order to successfully accelerate the pace of economic development, three areas of focus are suggested to take measures for so as to: 1) institutionalise and enhance the credit risk assessment of commercial banks, 2) set up a Development Bank to source and position new long term loan funds and lead the way in the financing of major projects in the economy, 3) create the capability of Government to have independent expert advise on the structuring, evaluation and financing of public sector and Public-Private-Partnership (PPP) projects.

      Correction to the text of the article: in the second paragraph of my article I meant to write:

      “να μετατραπούν οι καταθέσεις σε εισοδηματικά στοιχεία ενεργητικού”.

      Or in English “Income Generating Assets”. The word “income” was lost in translation I am afraid.

    • avatar
      A on April 20, 2014 - (permalink)

      Andrea, allow me a comment on the first line of your response, although it is possible that I may have misunderstood what you meant there, so apologies in advance if that is the case.

      The crisis in Cyprus has not much to do with the subprime mortgage crisis in the US, other than perhaps the common theme of demand for yield that led to mass investments in what essentially constitutes financial crap (real estate bubble, questionable acquisitions, etc…). The international propagation of the shock that originated in the US may have eventually exposed some of our vulnerabilities but it certainly did not create them.

  11. avatar
    Andreas Sergides on April 19, 2014 - (permalink)

    Dear Savvakis thanks for your prompt reply. Knowing you I would not have expected anything less.Happy Easter to you and your family.

  12. avatar
    Ανδρέας Σιαμμας on April 21, 2014 - (permalink)

    Παρακολουθώ τα σχόλια όλων των κυρίων χωρίς να με ενδιαφέρει εάν έχουν ή όχι διπλώματα και περγαμινές. Σημασία έχει ο λόγος και η ουσία των απόψεων.
    Δεν έχω ακούσει μια άποψη πρακτικά για τα θέματα υπερδανεισμού και της πιθανότητας διεξόδου. Ακούσαμε απόψεις για τα λάθη και παραλείψεις που οδήγησαν στην κατάσταση αυτή. Λάθος των τραπεζών που εξανέμισαν τις καταθέσεις των κυπρίων σε θαλασσοδάνεια και επενδύσεις αφιβόλου αξίας. Λαθος του κράτους που με ελλειπείς μηχανισμούς και διαπλοκή επέτρεψε να γίνει αυτό.
    Σήμερα υπάρχουν δεδομένα στα οποία πρέπει να απαντήσουν οι έχοντες την εξουσία αλιώς θα πάρουμε ”ηχηρή” απάντηση τα επόμενα χρόνια.
    Παρακαλώ απαντήστε σε ένα συγκεκριμένο παράδειγμα το οποίο απασχολεί χιλιάδες συμπολίτες μας. Δανείστηκε κάποιος π.χ 200.000 και αγόρασε ένα ακίνητο αξίας 500.000. Με την κρίση έπαψε να έχει δυνατότητα αποπληρωμής και το δάνειο έγινε προβληματικό. Μάλλον καλύτερα θεωρείται ο ίδιος προβληματικός τόσο από τις τράπεζες όσο και απο τους μηχανισμούς του κράτους. Ο ίδιος δηλώνει αδυναμία πρακτικά. Το δάνειο με τους τόκους ανεβαίνει κάθε χρόνο πέραν των 20.000. Η αξία του ακινήτου ξεφούσκωσε και είναι στα μισά. Προσφέρει το ακίνητο στην τράπεζα και ζητά να απαλλαγεί έστω και άν χάσει τις άλλες 300.000 που επένδυσε. Η τράπεζα δεν το θέλει. Βρίσκει να το πουλήσει έστω 200.000 αλλά καμιά τράπεζα δεν δανείζει κανένα για να το αγοράσει. ΑΥΤΟΣ Ο ΚΥΡΙΟΣ ΚΑΙ ΚΑΘΕ ΚΥΠΡΙΟΣ ΕΙΝΑΙ ΕΓΓΥΗΤΗΣ. ΕΧΕΙ ΙΣΩΣ ΑΚΟΜΑ 100.000-200.000 ΠΕΡΙΟΥΣΙΑΚΑ.
    Συμπερασματικά κύριοι είτε είστε οικονομολόγοι είτε πολιτικοί είτε φιλόσοφοι το αποτέλεσμα είναι ο κάθε κύπριος να χάσει όχι μόνο τις επενδύσεις του σε πρώτη κατοικία ή μια μικρή ή μεγάλη επένδυση αλλά την ίδια την ύπαρξη του, την υπόληψη του και το δικαίωμα να ζεί.
    ΟΛΑ ΑΥΤΑ ΣΑΝ ΑΠΟΤΕΛΕΣΜΑ ΤΟΥ ΟΤΙ ΕΚΑΝΕ ΛΑΘΟΣ ΕΚΤΙΜΗΣΕΙΣ.
    Οφειλε να προβλέψει ότι οι τράπεζες θα έκαναν θαλασσοδάνεια.
    Οφειλε να γνωρίζει ότι οι κυβερνώντες δεν θα επιβλέψουν και θα διαπλέκονται επιτυχώς.
    Οφειλε……… 1000 λάθη έκανε ο κύπριος. Ισως το μεγαλύτερο ήταν που γεννήθηκε στη Κύπρο
    ΜΙΑ ΑΠΟΨΗ

    ΑΝΔΡΕΑΣ ΣΙΑΜΜΑΣ

  13. avatar
    Andreas Sergides on April 21, 2014 - (permalink)

    Dear A, you are right in pointing out that the way I phrased my proposition could be misunderstood.Basically what I was saying is that in almost all the countries which experienced an economic crisis since 2008, albeit of varying degrees , there was one common underlying theme. In all these cases bankers were driven by greed and lent frivolously, and without paying due attention to the ability of the borrowers to repay.In our case it was particularly senseless knowing that the banking sector had grown beyond the ability of the Government to come to its rescue. The signs of an impending disaster due the combined total of public and private debt should have been spotted years before the actual crash.

    • avatar
      A on April 22, 2014 - (permalink)

      Well-said Andrea, thank you for your response.

  14. avatar
    A on April 22, 2014 - (permalink)

    To M,

    Regarding the merger, I will not be very solid on my view regarding the connection with the ELA because admittedly I have not seen the numbers, but I am not sure whether we do actually disagree on this one. There was a need to protect insured depositors at Laiki because there were not enough non-pledged high quality assets to meet the bank’s obligation towards these depositors. The ‘non-pledged’ part is where ELA becomes important in the decision to merge in my view.

    Regarding the bank run, I have no reason to challenge any of the facts that you outline on factual correctness, these have been in the media for a while now. Where I differ though, is on interpretation. The 100k threshold became well-known during the bail-in, it wasn’t common knowledge among depositors during the pre-bail-in era. The system worked because there was broader trust in the notion that money in the bank is safe money. I think the bail-in as implemented affected that trust, in much the same way that it would have had losses been shared more widely, especially if the distribution was based on some sort of a proxy for risk (interest rate spreads, etc…).

    • avatar
      Μ on April 23, 2014 - (permalink)

      A,

      My view differs from yours, as it was expressed in your initial comment, where you stated that an additional cost of ELA was the forced marriage of Laiki with BOC, which has been possibly driven by the inability of Laiki to meet its obligation towards CBC.

      Regardless of the merger, i cannot see any cost of ELA in general. I only see benefits.In case that we would consider ELA as a curse then liquidity from Eurosytem’s monetary operations (Laiki owed 6 billion to central banks in 2010 and 9 billion in 2011) should be also considered as a curse (it has to be repaid, it is not free, it also requires high quality assets to be pledged as collateral etc).

      In relation to the bank run, i am afraid i do not quite agree with your interpretation for a number o reasons:

      Even though I believe that depositors were aware of the 100k threshold, i don’t believe that is quite important, since they would have learned about it anyway. I do not believe that the impact of taking a right away from them, would be equivalent to the current one.

      In case that your suggestion for a wider distribution of losses, based on some sort proxy of risk, includes insured depositors as well, i disagree. I believe that any levy on insured depositors would have crumbled the (only) remaining pillar of trust that provides the safe harbor for insured depositors.

      In case that your suggestion for a wider distribution, excludes insured depositors, I Believe that robust institutions should have been excluded as well, because a uniform approach, would have sent a message that deposits are not safe in Cyprus regardless of where they have been placed.

      I finally I believe that once the primary aim of protecting the economic model was rejected (The rational that the economic model would have been protected by imposing a uniform levy, i believe it was illusive.Take into consideration the number of Russian learjets landed in Larnaca during the first weekend), the alternative choice was to protect the Cypriot depositors as far as possible (and minimize political impact). In my opinion that(those) was(were) the reason(s) why Coop Banks where bailed out.

      • avatar
        Alexandros on April 23, 2014 - (permalink)

        M: these are very good comments, and I agree with you. Another reason why coops were bailed out were that there were few depositors with over 100k (netted out of loans) in the coops, hence any bail-in would have fetched too little to justify another blow to confidence.

        It seems to me that the critics of ELA are only to be found in Cyprus, and have largely political motives (even the academics, as we have seen with a certain academic candidate for the EP). They are clearly aiming to shift the blame for the crisis from the bankers and politicians who really caused it to those who helped to get us out of the mess, in order to serve their political masters who are engaging in this big cover up.

        They are of course joined by a mass of confused ignoramus who have no idea about the basic principles of banking. Hence the whole discussion on ELA and merger etc, really serves a very useful purpose.

        • avatar
          A on April 24, 2014 - (permalink)

          Alexandre,

          Politicians messed up, there is no way around it. Your constant insistence in calling people who are critical of ELA (not liquidity support in general) names such as “confused ignoramus” and attributing political motives to their positions is getting a bit out of hand.

          Some of us “ignoramuses” are actually banking economists, who were educated, live and work abroad, have seen balance sheets of much more important banks than the ones we focus our attention on in this discussion, who are asked to give their opinion on banking crises by people far more important than whoever it is that presides over policy in Cyprus, and who couldn’t care less about whatever petty political battles are taking place in Cyprus at the moment.

          Given the kinds of professional settings that some of us are used to operate in, a dispassionate approach to any topic is not a choice but second nature, and taking disagreements personally is not something that we take an interest in or have time for.

          You seem to find my arguments, as well as those of others, to be revealing of a lack of comprehension of basic baking concepts. Did it ever occur to you that I feel the same way about your arguments, although to be fair I’d say that yours reveal a lack of familiarity with the more refined complexities of banking that no amount of text-reading will ever get you close to comprehending? Difference is, I don’t see this as anything more than a cheap way out of a conversation I don’t like having, possibly winning the support of like-minded people along the way.

          I don’t know where you learned your banking or who decided to employ you on the merits of your academic qualifications and professional experience. You are very articulate and certainly understand more than the basics in banking, but your constant claims of “mastery by name-calling” are characteristic of somebody who is not used to having his way of thinking challenged by strong banking economists on a daily basis; as I said before, you are undermining your arguments through this combative style. This black and white approach to arguing (“either with us or against us”) may win support by similarly minded economists in Cyprus, but is the shortest path to turning professionals off in the international arena (and you should know, my guess is that you were probably educated abroad).

          Yes the politicians messed up, yes some/many/all of them are trying to protect the interests of their clients in private life (Russian oligarchs, etc…), yes the ELA was demonized by the ruling party for political gain, but if you were to hold the same conversation abroad where these facts carry no weight whatsoever in the way of building a case for ELA for Laiki, then your arguments judged on the merits of the economic foundations they rest on, will be deemed much weaker and much too general than you currently seem to appreciate.

          Point being, it is ok to disagree, just take the emotion out of it and you may be able to get more important people than stockwatch readers to listen.

          • avatar
            Alexandros on April 24, 2014 - (permalink)

            Wow! That did get you going, didn’t it? And how presumptuous you can be. Indeed. Shall I flash out my foreign qualifications and work experience too? Not really, I have no need for that.

            But I will tell you one thing. The conversation about the supply of ELA to Laiki I did have abroad, many times, with some of the most senior people in banking and I have yet to come across anyone who thought Cyprus had any other choice with Laiki other than to supply ELA until the programme negotiations were concluded. That strengthens my conviction that Cypriot ‘economists’ who publicly argue otherwise is because they are either ignorant or are trying to please politicians who can offer ‘goodies’ to them. Am I wrong to look down on cronyism?

            Yes the supply of ELA in the end meant that more informed depositors managed to get out in time, a lot of them in fact in the first half of March, increasing the burden on the others, but hey, what was the alternative? Close down an entire banking system?

            By the way I never claimed anything about anyone’s baking principles. :)

  15. avatar
    A on April 23, 2014 - (permalink)

    M,

    Regarding the cost of emergency liquidity assistance, I outlined my thoughts in response to Alexandros’ comments above, the short summary is that Laiki substituted ELA for bail-inable deposits that fled the system and that had severe consequences for the size of the final haircut.

    I am not against liquidity assistance in general, Bagehot’s rule is great, but when liquidity is provided to an insolvent institution it does come at the kind of cost I outlined above. In addition, and this is a more subtle mechanism which may or may not have been important in magnitude in this case, the super seniority of ELA compared to deposits raised deposit risk and quite possibly drove some of the more informed investors out faster.

    Regarding the 100k threshold I cannot offer any counterarguments really other than say that in my opinion trust in the Cypriot government’s ability (not desire) to respect the threshold is probably gone, and will only return when a European deposit insurance fund is up and running; I am quite happy agreeing to disagree on that one though.

    Regarding the broad-based distribution of losses, I would partly exclude robust institutions but not entirely. Co-insurance arrangements between institutions during crises is not a new thing and existed long before central banks came in existence, the difference in our story being that there was no co-insurance fund in place and somebody (depositors) needed to take a hit. The theoretical justification as applied in the Cypriot case, would be that if the big banks fail then the system fails and takes robust banks down with it, and if we really want to push a risk-based rule for haircuts, then anyone who deposited with a Cypriot bank was taking on at least some systemic risk which could very well be priced in the final haircut.

    More generally, in the process of restoring the “hierarchy of finance”, we seem to be abstracting away from the fact that banks do not operate in a vacuum and any policy that we impose on them can have an effect on the real economy. For example, we seem to find it easy to assert that a firm which deposited its working capital with the wrong bank should face the consequences of its actions and be wiped out overnight. What is the logical justification for that assertion? I see no reason (certainly no evidence either) to assume that the kind of managerial ability that is required to survive the competitive landscape should readily translate to an ability to understand the balance sheet of one’s banker. We allow a finance rule to sort winners and losers in the real economy and, again, it is not completely clear on what evidence theoretical or otherwise we are basing that decision.

    Nobody is of course suggesting that every depositor should suffer the same a haircut, and nobody is certainly suggesting that we should have tried to protect the part of our business model which involved a Russian oligarch parking money at one of our banks and expecting a return. I am not against the bail-in (plenty of evidence on that from my comments last year even before the bail-in took place) but there are good aspects of our economic model that the bail-in as implemented has done away with, and a case can me made for why a more carefully designed bail-in, with perhaps a broader but not uniform distribution of losses, may have eased some of the pressure off the real economy without completely destroying the incentive structure of creditors.

    You are of course entitled to disagree with any/all of these thoughts and rest-assured I appreciate your feedback.

    In closing, and certainly not referring to your responses but this has been voiced in some blog posts so I might as well address it here, there seems to exist this notion that the bail-in as implemented is what any “reasonable economist” would suggest; well, “reason” is very subjective to say the least. From personal experience discussing these issues with well-respected economists in some of the same international organizations that implemented the bail-in measures in Cyprus, there are professionals out there quite willing to yield some ground to the idea that there could have been a better middle ground that the bail-in as implemented fell short of finding. That is not an argument as to why my opinions may be more right than wrong, but let us be clear here that not every reasonable economist agrees with what was done in/to Cyprus, at least not with the way “it” was done.

    Thank you again for your comments.

    • avatar
      Alexandros on April 24, 2014 - (permalink)

      A: these are in general sensible remarks and clearly indicate the way of thinking of an economic historian, which to me also explains why you go wrong with some of your arguments, by trying to draw policy conclusions for today using examples from bygone years and very different set ups. Your argument that investors with all the transparency and information flows we have today are not able to judge bank balance sheets with which you try to justify a broad based tax on deposits is clearly from another era.

      You then contradict yourself with the the ease with which you
      conclude that Laiki was insolvent, although modern definitions of supervisory solvency are dynamic and involve a supervisory assessment, which require a lot of information that you as an outsider do not have.

      Laiki remained dynamically solvent (it would have been recapitalised under the programme) until the day our parliament voted NO. Had parliament voted YES Laiki would have been recapitalised with the money from the ill conceived tax on deposits. In all likelihood, it would have been with us today, with the help of likely tougher restrictive measures.

      Economic history is great and can guide us to some extent but does not have all the answers for today’s problems.

      • avatar
        A on April 24, 2014 - (permalink)

        Agreed, I know my economic history rather well but most of my economic thinking does not derive from that part of my knowledge base. Having said that, deriving lessons from economic history is a practice that almost every important banking economist I know of (academic or otherwise) is not too shy about engaging in; if you draw the right lessons you are usually on safe ground.

        Clearly not every firm with working capital at a bank is an active investor which spends time to understand the bank’s balance sheet (though economic theory finds it rather useful to abstract away from such nuisances), and clearly not every individual who was receiving a high interest rate thought that they managed to game the system; many people just put money in the bank they had a working relationship with and left it that.

        Regarding Laiki’s solvency, last time I checked a US supervisors’ rulebook on bank examination – and US regulators are pretty modern I would think- a worryingly (not to mention embarrassingly) high rate of non-performing loans as was evident in Laiki’s financial reports (they are online, feel free to browse) makes for a pretty good indication of potential insolvency. Forbearance is fo course a standard practice employed by banks to make a balance sheet look presentable and can give a bank a lot of mileage the more inadequate bank supervision is. I am fairly certain that even with the high reported NPL ratios, Laiki was actively engaging in this practice before its downfall, but as it turns out you cannot put lipstick on a pig; losses will be revealed one way or the other and so they did in the case of Laiki.

        • avatar
          Alexandros on April 24, 2014 - (permalink)

          Indeed a high rate of NPLs is indicative of potential insolvency but that is only one data point, the rest is the cure rate of NPLs, the expected losses given default and the amount of capital it already has to cover losses or indeed will be able to raise. Thus, the prospect of recapitalisation has to be taken into consideration before the supervisor makes their final conclusion. Laiki was deemed dynamically solvent, precisely because of the prospect of recapitalisation, indeed initially by private investors in the first half of 2012 and when that failed by the prospect of the programme. Had Christofias not agreed to apply for a programme, Laiki would have been insolvent on 30.6.12, notwithstanding the 1.8 government bond capital injection, precisely because the government had no access to markets other than via the programme route. If that had happened CBC would have been unable to supply ELA and at that time Laiki would have had to be liquidated.

          The rest is history, as they say. And I do agree with you that some of the best banking economists are historians, eg Charles Calomiris. But I also know many economic historians who are pretty hopeless when it comes to banking principles.

      • avatar
        A on April 24, 2014 - (permalink)

        Further to your comment above, which I cannot seem to find an active reply button for, I partly flashed your credentials on your behalf, you definitely do not strike me as a random commentator!

        Baking is my Waterloo, I can concede defeat on that one :)

    • avatar
      Μ on April 24, 2014 - (permalink)

      Α,

      I don’t believe that the provision of ELA was not in-compliance with Bagehot’s rule and/or the provisions of article 123 of the treaty of functioning of the European Union. I don’t have reasons to believe that it was provided against junk collateral or at a lower (than Eurosystem’s monetary operations) interest rate. Solvency on the other hand is dynamic. Government support of 1,8 bn rendered Laiki solvent in the short run and the initial MOU that provided 10b solely for banks recapitalization (PIMCO results indicated a capital shortfall of 8,6 bn under the severe scenario), in the long run. The burden of supporting Laiki had been borne by the State. Therefore in my opinion the provision of ELA was in-compliance with article 123 of the Treaty and with Bagehot’s rule.

      I believe that the substitution of bail-inable deposits with non bail-inable Liquidity took took place (mostly) back in 2011. Liquidity from Eurosystme is not bail-inable either. It is provided against collateral. Assets pledged as collateral in 2011 for funding from central banks, amounted to approximately 13 bn on December 31, 2011 (note 19 of annual financial statements). Well informed depositors were able to withdraw money since 2010 where Liquidity from Central Banks amounted to 6 bn. More depositors were able to withdraw money in 2011, where the amount due to Central Banks was more than 9 bn. Judging by the numbers, it appears that the amount due in 2011, mostly changed its name to ELA during 2012-2013.

      The provision of Liquidity could not have been stopped in my opinion for a number of reasons: There was a bailout program in process; there weren’t any legal tools available that could prevent a bank run; Legal tools that would restrict capital movements, could possibly be against the provisions of article 63 of the Treaty of functioning o EU and therefore an EU agreement might was necessary.

      I am afraid that I disagree with your views on just partly excluding robust institutions. I cannot see any rational on including robust institutions, as I wouldn’t see any rational (in a capitalistic environment) on partly writing down the amount of money that a robust company owes to its creditors, in order to transfer funds to another company which is not able to meet its obligations. I believe that this could not have been supported legally either, since even if that was a resolution tool, a robust institution would not be under Resolution.

      Thank you for a fruitful exchange of views.

      • avatar
        Alexandros on April 24, 2014 - (permalink)

        M: these are very good points and I agree with you wholeheartedly, but ain’t am not sure that A will be convinced.

        I like your emphasis on legal aspects, something that I am not very strong on! Indeed, the whole exercise of saving Cyprus from a disorderly default was based on a marriage between sound law and sound economics. Thats why so far the resolution measures have held up well in courts. The main missing element at the time was the absence of conducive local politics, since most of the local politicians were part of the crony system that brought about the crisis NAND all they could think was how to protect it. Even the NO in parliament was for all the wrong reasons.

        • avatar
          Μ on April 25, 2014 - (permalink)

          Alexandre,

          Thank you for your comments. I have noticed that we share the same views on ELA and why it has been demonised, through some older posts of ours. In reference to your comment regarding the soundness of Law and Economics employed during the resolution period, i mostly agree. I have read some well-presented arguments on why the legality of the resolution process could possibly be questionable but I wasn’t convinced. In my opinion the whole resolution process has one single and extremely simple drawback (that seems to pass unoticed), which may has been possibly driven by pressures.

  16. avatar
    Επιλήσμων on April 24, 2014 - (permalink)

    Αγαπητέ φίλε Σαββάκη, τώρα που το νέο ΔΣ της ΤΚ βαίνει ολοταχώς προς διαχωρισμό της τράπεζας, και αντί “κακή” θα την βαφτίσουν “Αναπτύξεως”, είμαι σίγουρος ότι θα νοιώθεις δικαιωμένος – λαμβάνοντας υπ’ όψη τα σχόλια σου στο τελευταίο άρθρο του κ. Έρολ Ρίζα. Παραμένει όμως να δούμε εάν θα είναι πραγματικά “αναπτύξεως” και όχι “κακή”. (Όταν λέμε “κακή” το εννοούμε με τον γνωστό τραπεζικό ορισμό).
    Το ουσιώδες ομως είναι ότι τελικώς διαχωρίζεται. Κάτι που έπρεπε να γίνει από καιρό, από το “Μεταβατικό” ΔΣ ας πούμε! Αντιλαμβάνομαι όμως ότι τότε υπήρχαν αντιδράσεις/ενστάσεις από πανταχόθεν!

    • avatar
      Savvakis Savvides on April 24, 2014 - (permalink)

      Αγαπητέ Επιλήσμων,

      Ως συνήθως τα σχόλια σου είναι πολύ εύστοχα και στην ουσία του θέματος. Πολύ σωστά όπως λέγεις είμαι συγκρατημένα αισιόδοξος ότι επιτέλους (and by doing it the hard way) μπορεί να είμαστε στο σωστό δρόμο. Το κυριότερο όμως για μένα δεν είναι αν βγω προσωπικά δικαιωμένος η όχι. Είναι αλήθεια ότι έδωσα πολλές μάχες και δεν τα έβαλα ποτέ κάτω, αλλά όχι για να μου πει κανένας μπράβο, αλλά διότι πίστευα και ακόμη πιστεύω ακράδαντα ότι αυτή ήταν η σωστή πρακτική. Εκείνο που με ανησυχεί όμως είναι να μην θεωρήσει κανείς ότι με το να αποκαλέσει το εγχείρημα αυτό Τράπεζα Αναπτύξεως ως δια μαγείας θα έχουμε ένα άπταιστο επαγγελματικό και αδιάβλητο τραπεζικό οργανισμό που θα μπορούσε να φέρει εις πέρας την δύσκολη αποστολή που θα του ανατεθεί. 9 στις 10 Τράπεζες Ανάπτυξης έχουν αποτύχει για τον απλούστατο λόγο ότι δεν ήταν σωστά καταρτισμένες και δυστυχώς πολλές ήταν τηλεκατευθυνόμενες. Έζησα την Κυπριακή Τράπεζα Αναπτύξεως και τον καιρόν ήταν υπόδειγμα για όλο τον κόσμο και στην παρακμή της. Για αυτό η αγωνία μου είναι να γίνει σωστά και να δοθεί ευκαιρία σε ανθρώπους που γνωρίζουν το αντικείμενο να τους συμβουλέψουν πως πρέπει να γίνει. Έτσι θα είμαι συγκρατημένος διότι μέχρι τώρα οι εμπειρίες μου στην Κύπρο είναι ότι τα στενά ειδικά συμφέροντα και το βόλεμα ημετέρων προηγούνται του αντικειμενικού επαγγελματισμού.

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