The Cypriot Bailout Hasn't Rocked Markets—Yet

People wait and use the ATM machines outside of a Laiki Bank branch in capital Nicosia, Cyprus, Sunday, March 17. Photograph by Petros Karadjias/AP Photo

Could the tiny Cyprus banking system be the powder keg whose explosion reverberates around the planet? A bank run in Cyprus, a euro zone nation of 1.1 million, should be an island-contained crisis. But the entwinement of Cyprus and Russia, the world’s ninth-biggest economy, makes things complicated. Russia’s banks and companies have $31 billion parked in Cypriot banks, according to estimates by Moody’s Investor Services—on top of almost as much in Russian bank loans to Cypriot companies. The immediate question is: How confident are 145 million Russians that their money is safe at their Russian bank? By extension, how confident are global banking multinationals—in the U.S., Switzerland, London, Brazil, and China—that their Russian counterparties are good for their rubles if Cyprus rots up to their balance sheets? Will this all prompt a mass run on banks in weak links such as Italy, Greece, and Spain? And a bolt to the exits by equity investors the world over?

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