Cyprus Bank Deposits Fell in February Before Bailout Talks

Cypriot banks lost 1 billion euros ($1.3 billion) in deposits in February amid rising uncertainty about the country’s ability to secure a bailout.

Deposits decreased 2.2 percent from January, when they dropped 2.1 percent, European Central Bank data show. That’s the ninth straight decline. Cypriot deposits in February totaled 46.4 billion euros, down from 47.4 billion the previous month.

Outflows probably increased in March, when Cyprus agreed to tax deposits of more than 100,000 euros and wind down Cyprus Popular Bank Pcl, the country’s second biggest, with viable assets being taken over by Bank of Cyprus Plc, the largest lender. Banks, which had been closed since the levy on deposits was first proposed on March 16, are reopening today after capital controls have been imposed.

“A catastrophe has been averted” when the country signed on to the bailout conditions “but the impact on the Cypriot economy is going to be huge,” UBS AG Chairman Axel Weber, a former president of the German Bundesbank, said in an interview yesterday. “Banks will become even more dependent on ECB liquidity because deposits will be largely drained.”

The ECB said on March 25 it won’t stop the Cypriot central bank from providing the island’s banking sector with emergency funding. It had previously threatened to veto lending if a deal that promised fresh capital and ensured the solvency of the Mediterranean island’s banks wasn’t reached.

In Greece, which triggered the sovereign debt crisis that has forces five countries into seeking bailouts, deposits rose to 171 billion euros from 167.7 billion euros in January. Deposits were little changed in Spain, Portugal and Ireland.