European Banking Federation Is ‘Concerned’ by Cyprus Deposit Tax

The European Banking Federation said the levy planned for bank savings in Cyprus may spark uncertainty and hurt small depositors.

The group, representing 4,500 European banks, is “very concerned” that the agreement to tax Cyprus deposits includes those falling within the European deposit guarantee threshold of 100,000 euros ($129,380), the Brussels-based organization said in a statement today.

“This decision could harm small depositors and may generate the kind of uncertainty our economy does not need in the current circumstances,” EBF Chief Executive Officer Guido Ravoet said.

Finance ministers in the euro area reached an agreement on March 16 forcing depositors in Cypriot banks to share the costs of the region’s latest bailout. The measures would raise 5.8 billion euros by taking a piece of every bank account in the country. The euro weakened to its lowest level this year, while the Stoxx 600 Banks Index dropped as much as 2.4 percent, the biggest intraday decline since March 1.

The planned levy -- 6.75 percent on all deposits of as much as 100,000 euros and 9.9 percent above that -- would whittle down the euro area’s bailout of Cyprus to 10 billion euros from 17 billion euros, near the size of the nation’s 18-billion-euro economy. Deposits of less than 100,000 euros fall under European account insurance.

Ravoet said Cyprus is in a “particular situation due to the importance of the banking sector in its economy.”

European policy makers signaled flexibility on the application of the levy as long as the targeted amount is raised, leaving room to ease costs for smaller savers.

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