PIIGS Bank Deposits Outflow Accelerating

As I noted a month earlier, Spain's bank deposits posted an outflow and this outflow is accelerating for the month of May 2013. This time, Italy is posting outflows too.

Greece, Cyprus are of course still in a decline. I expect bail-ins to come if this trend continues. Europeans should be worried about their deposits.

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Bank Deposits Update: Spain is in trouble

Time for another bank deposit update for the month of April 2013.

Cyprus continued to have a bank run in deposits, but the most interesting event is that Spain's deposits are starting to deteriorate too.

Guess where the deposits are going to? Yes, Germany, France, Italy and even Belgium.

That means that money is flowing from the periphery into the center of Europe. I wonder how long this imbalance can continue.

Chart 1: Bank Deposits Periphery of Eurozone

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Bank Deposits Update

Remember the Cyprus debacle in March? We were worried about deposits declining.

In February, deposits declined in Cyprus, Ireland, Greece, Portugal. But they increased in Italy and Spain.

In March, we see the same happening again. So I don't see any significant changes. Maybe the Cyprus crisis was just a little drop in the sea.

Chart 1: Bank Deposits

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Belgium the next country to fall

As I said before here and here, Belgium is the next domino to fall after Greece.

If you don't believe me, believe Zerohedge. As you can see on chart 1, the countries on the left have the least equity/capital reserves as a percent of deposits.

So to avert insolvency of Belgian banks, depositors need to be thrown into the fire eventually. But luckily, Greece will be first...

Prepare yourself.

Chart 1: % bad debt that can be impaired before deposit haircuts

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Bank Reserve Requirements in the Eurozone

Following the crisis in Cyprus of which I talked about here, there has been a question on how much stress the banks can have during a bank run, before their liquidity is at stake.

A typical bank balance sheet looks like this (Figure 1). If the deposits get drained on the right side, the cash gets drained on the left side. The question is, how high is the limit of a drain on deposits?

Figure 1: Balance Sheet

Let's analyze the bank reserve requirements first. 

Chart 1: Reserve Requirements

Then we look at the capital and reserves of the banks. The capital and reserves are given in the last column (Table 1).

Table 1: Bank Statistics

Chart 2: Capital and Reserves to Deposit Ratio

Go here to read more.

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Bitcoin Exploding on Cyprus

And if you hadn't noticed, bitcoin just exploded 20% to the upside on the Cyprus news, which bodes well for gold obviously.

Chart 1: Bitcoin

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What does Cyprus mean to your money?

On 15 March 2013, Cyprus said it will impose a levy of 6.75% on deposits of less than 100,000 euros and 9.9% above that. The measure will raise 5.8 billion euros ($7.5 billion), which implies that we have about 68 billion euro ($85 billion) in deposits in the Cypriot banks. What this means is that each depositor in a Cypriot bank will get a haircut on their savings. This event is actually a very important one in history as it marks the first time that depositors actually lose their money, despite the presence of a deposit insurance. Of course, you can't have deposit insurance without a bailout of the banking system by the IMF. But to have this bailout, depositors need to have a cut (imposed by the IMF). It's sort of a paradox: "from now on deposit insurance is not insured anymore".

Many people think that their deposits are safe when they put their cash in the bank, but they either lose it to inflation or in this case lose it to the government. The result is that investors lose confidence in the banking system and will go to assets like precious metals which don't have counterparty risk.

To read more go here.

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