There is a low but not negligible bank run risk in other parts of Europe owing to the Cypriot banking crisis, according to JP Morgan Private Bank in a comment from its chief investment strategist for Europe, César Pérez. His comments come as the European Central Bank yesterday stepped up pressure on the small eurozone state, saying it had until next Monday to agree a bailout plan with the European Union and the International Monetary Fund, or else be cut off from emergency funding that is keeping the Cypriot banking system going. Cypriot lawmakers have voted against a plan to impose a levy on bank depositors.
“We believe Europe has taken a meaningful but calculated risk to systemic stability. In the short term, the risks of contagion or a bank run somewhere else in Europe are low, but not negligible. The agreement needs approval by the Cyprus government in the next days before the banks can reopen and we see this as the key hurdle in this process,” Pérez said in a note.
“Given the previous package failing to pass in parliament, we expect a more thorough proposal from the government this time round, including a smaller portion of the €5.8 billion to be raised through a deposit levy. We also believe that it is more likely for the outstanding deposits above €100,000 ($129,261) to be taxed and therefore approval in parliament would be less of an issue than it was for the last proposal,” he said.