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Cyprus banks will stay closed until Thursday Cyprus banks will stay closed until Thursday
(35 minutes later)
The Cypriot central bank has announced that the country's banks will stay closed until later this week as fears mount of a bank run.The Cypriot central bank has announced that the country's banks will stay closed until later this week as fears mount of a bank run.
The country's banks were closed for a scheduled Bank Holiday on Monday, something that allowed Cyprus to try to implement a levy on savers' deposits.The country's banks were closed for a scheduled Bank Holiday on Monday, something that allowed Cyprus to try to implement a levy on savers' deposits.
That move triggered unease among depositors in Cyprus, where cash machines soon ran out of funds.That move triggered unease among depositors in Cyprus, where cash machines soon ran out of funds.
The rescue also unnerved investors, sending shares and the euro lower. It had earlier unnerved investors, sending shares and the euro lower.
The EU and IMF want all bank customers to pay a levy in return for a bailout worth 10bn euros ($13bn; £8.6bn).The EU and IMF want all bank customers to pay a levy in return for a bailout worth 10bn euros ($13bn; £8.6bn).
Spanish and Italian markets fell 2%, with bank shares the hardest hit. Spanish and Italian markets were down 2%, with bank shares the hardest hit.
The euro lost 1% against both the pound and the dollar, leaving it at 85.6p and $1.295 respectively.The euro lost 1% against both the pound and the dollar, leaving it at 85.6p and $1.295 respectively.
Earlier, Japan's Nikkei 225 index fell 2.7%, while Hong Kong's Hang Seng and Australia's ASX 200 dipped 2%.Earlier, Japan's Nikkei 225 index fell 2.7%, while Hong Kong's Hang Seng and Australia's ASX 200 dipped 2%.
Many major banks in Italy, France and Spain, some of the eurozone's most indebted countries, were down between 4% and 5%.Many major banks in Italy, France and Spain, some of the eurozone's most indebted countries, were down between 4% and 5%.
In France, Credit Agricole and Societe Generale were hardest hit, losing about 4.5%, while Spain's BBVA lost a similar amount. In France, Credit Agricole and Societe Generale were the worst affected, losing about 4.5%, while Spain's BBVA lost a similar amount.
Even in Germany, Deutsche Bank was down 3%, while Commerzbank was 1.3% lower. In Germany, Deutsche Bank was down 3%, while Commerzbank was 1.3% lower.
'Confusion' Short-lived
Some investors think the Cyprus plan could prompt depositors elsewhere, particularly in Greece, Portugal, Ireland, Italy, Greece and Spain, to withdraw their funds.Some investors think the Cyprus plan could prompt depositors elsewhere, particularly in Greece, Portugal, Ireland, Italy, Greece and Spain, to withdraw their funds.
"The unprecedented move is an extreme measure and in our view, it will spread some panic... we cannot rule out some capital outflows," said Annalisa Piazza of Newedge Strategy."The unprecedented move is an extreme measure and in our view, it will spread some panic... we cannot rule out some capital outflows," said Annalisa Piazza of Newedge Strategy.
Government bond yields - the implied interest rate that countries pay to borrow money - rose for weaker eurozone economies, in an indication that investors see higher risks. But most investors thought the falls would not last long.
Cyprus's seven-year bond yield jumped by more than 1.5 percentage points to just over 10%. Kevin Lilley, European equities fund manager at Old Mutual Asset Management, said he was sitting tight: "I am not doing anything about it. My initial thoughts are that this is a circumstance that is peculiar to Cyprus."
Italian and Spanish government bond yields rose by far less - and after rising by more than 0.1 percentage points, 10-year yields for Italy were at 4.65%, while Spanish 10-year yields were at 4.9%. He added that if he had surplus cash, he would probably be taking advantage of the price falls and buying.
But the European Central Bank board member, Joerg Asmussen, said he did not think Cyprus's problems would spread to other eurozone countries: "I do believe that the situation of Cyprus and the Cypriot banking sector is indeed unique." A number of other leading fund managers said they, too, were not changing their investment strategy.
Some also see it as undermining the credibility of European authorities who, in other bailouts, such as in Spain, have demanded that it is the large financial institutions that lent money to the governments and banks which should incur losses when things go wrong, not depositors. David Cumming of Standard Life told BBC News he thought the wider impact would be limited. "I don't think it will have a lasting impact, I think it's an excuse for a correction after a strong run-up."
In addition, "the Cyprus package highlights the increasing reluctance of countries like Germany, Finland and the Netherlands to support weaker eurozone members," said Satyajit Das, an author and former banker.
David Cumming of Standard Life told BBC News he thought the wider impact would be limited, however.
"I don't think it will have a lasting impact, I think it's an excuse for a correction after a strong run-up."
He said people trusted the EU's mechanisms for maintaining stability in the eurozone: "I don't see a destabilisation of bank deposits across Europe. I don't see any impact for more than a few days in the market."He said people trusted the EU's mechanisms for maintaining stability in the eurozone: "I don't see a destabilisation of bank deposits across Europe. I don't see any impact for more than a few days in the market."
The European Central Bank board member, Joerg Asmussen, also said he did not think Cyprus's problems would spread to other eurozone countries: "I do believe that the situation of Cyprus and the Cypriot banking sector is indeed unique."
The movement in major government bond yields - the implied interest rate that countries pay to borrow money - was small - an indication that bond investors saw limited risks at the moment.
Cyprus was hardest hit, with its seven-year bond yield jumping by more than 1.5 percentage points to just over 10%.
Italian and Spanish government bond yields rose by far less - and after rising by more than 0.1 percentage points, 10-year yields for Italy were at 4.65%, while Spanish 10-year yields were at 4.9%.
Some see it as undermining the credibility of European authorities who, in other bailouts, such as in Spain, have demanded that it is the large financial institutions that lent money to the governments and banks which should incur losses when things go wrong, not depositors.
In addition, "the Cyprus package highlights the increasing reluctance of countries like Germany, Finland and the Netherlands to support weaker eurozone members", said Satyajit Das, an author and former banker.
DippingDipping
This is the first time the 17-nation eurozone has sanctioned dipping into people's savings to finance a bailout. This is the first time the 17-nation eurozone has seen a country dip into people's savings to finance a bailout.
The plan is yet to be finalised, but the news of the deal caused a rush to the cash machines in Cyprus as people tried to withdraw money.
Under the one-off levy, bank customers with less than 100,000 euros would have to pay 6.75%, while those with more than 100,000 euros would pay 9.9%.Under the one-off levy, bank customers with less than 100,000 euros would have to pay 6.75%, while those with more than 100,000 euros would pay 9.9%.
Depositors will be compensated with shares in their banks. Depositors in Cypriot banks outside the country, including in Greece, are unaffected by the levy.
The banks in Cyprus were closed on Monday for a scheduled Bank Holiday, the timing of which prompted the authorities to introduce the plan.
Individuals are therefore unable to make over-the-counter transactions and some cash machines have already run out of money.
However, depositors in Cypriot banks outside the country, including in Greece, are unaffected by the levy.
But the plan is yet to be finalised and Cyprus's leaders have said they want to ensure protection for small investors.But the plan is yet to be finalised and Cyprus's leaders have said they want to ensure protection for small investors.
Meanwhile, an emergency session of the Cypriot parliament has been postponed until Tuesday.Meanwhile, an emergency session of the Cypriot parliament has been postponed until Tuesday.
Also, Germany must approve the plan, but is not due to vote until next month.Also, Germany must approve the plan, but is not due to vote until next month.
Following eurozone finance ministers' negotiations last week, Cyprus became the fifth euro-area country to get a bailout to save its banks, which suffered significant losses because of their exposure to Greek debt.Following eurozone finance ministers' negotiations last week, Cyprus became the fifth euro-area country to get a bailout to save its banks, which suffered significant losses because of their exposure to Greek debt.