Cyprus final bailout agreement is worse for the FX brokers

Cyprus final bailout agreement explained by professional Forex trading experts the “Cyprus final bailout agreement ” FX trading team.

Cyprus final bailout agreement

The new (and seemingly final) Cyprus bailout agreed to Sunday night by senior Cyprus government officials, the EU and the IMF will see the complete wind-down of Laiki bank, the second largest bank in the country. The insured deposits of Laiki bank (deposits under €100,000) will remain intact and will be transferred to Cyprus’ largest bank, the Bank of Cyprus.

That’s all nice, but how did Cyprus come up with the €5.8 billion or so it needed to show the EU, in order to secure a €10 billion EU rescue package? That’s coming (mainly) from the uninsured depositors at both Laiki and the Bank of Cyprus. While the percentages are still unclear, back-of-the-envelope calculations lead to the confiscation of roughly 40% of uninsured deposits at Laiki, and about 30% at Bank of Cyprus, to come up with the necessary amount.

This outcome — as opposed to last week’s 10% proposed levy on uninsured deposits, plus 6.75% of insured deposits — will hit certain Cyprus-based FX brokers much harder then the original proposal. Let us explain.

As we wrote last week, those Cyprus FX brokers such as FxPro which apparently kept all client money (and much of their own) outside the country should not be affected. However those smaller FX brokers which kept both client money and much of their own money with Laiki or Bank of Cyprus — and there are many — will suffer, and possibly go under. Those brokers will simply wake up this morning (or whenever the banks in Cyprus actually re-open, which is still unclear as of this writing) and find that about 40% of their funds are gone.

Cyprus final bailout agreement Conclusion

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