Investors fearful of run on troubled banks

Investors will be watching to see if the decision to tax depositors in Cypriot banks could create a bank-run in other troubled economies today as the Cypriot parliament weighs up whether to accept an EU bailout deal.

Cypriot account holders have been blocked from moving money from their accounts over the weekend and will have the “tax” automatically withdrawn before being able to access them again, possibly tomorrow morning.

The money from the EU rescue fund will be €10bn but another €7bn was required to rescue the country’s two major banks and the state. The balance will come from the deposit levy, increased corporation tax, and privatisation of state enterprises. As with Ireland, the cost of the bailout will be borne mainly by the taxpayer as the senior bondholders and those holding sovereign debt are untouched.