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A Bank Is Not a Vault



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Writing in the FT, Martin Wolf has a lengthy article (behind the paywall) on the Cyprus mess. It’s a bit of a curate’s egg (he appears to want a euro zone banking union, a guarantee of either—further—stagnation or—further—catastrophe, or both), but he has one or two observations, including this robust response to the idea that the Cyprus bail-in/default (“tax”) is “theft”:

This is nonsense. Banks are not vaults. They are thinly capitalised asset managers that make a promise – to return depositors’ money on demand and at par – that cannot always be kept without the assistance of a solvent state. Anybody who lends to banks has to understand that. It is inconceivable that banking – a risk-taking financial business – can operate without exposure to loss of at least some classes of lenders. Otherwise, bank debt is government debt. No private business can be allowed to gamble with taxpayers’ money in this way. That is evident.



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