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Cyprus as Precedent: Will There Be Bank Runs Elsewhere?

posted by Adam Levitin

Anyone want to take bets on whether there will be runs on Italian, Spanish, and Portugese deposits? That's my bet. I'm not sure that we'll see small retail depositor runs, but I would predict that high dollar deposits in all of those countries will start flowing abroad very fast before any capital controls can catch up with them. And that will push up borrowing costs for those banks if they want to retain high-dollar deposits.


I traveled to Italy about 18 months ago and stayed at a B&B run by a well-educated doctor. He told me that he converted all of his Euros to Dollars and then placed the Dollars in a safe deposit box. The loss of interest wasn't worth it -- simply too risky to have a deposit at an Italian bank. Who knows how many Dollars (and Euros) are sitting in safe deposit boxes instead of deposit accounts?

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