Cyprus bank account levy may collapse

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A no entry sign is seen outside a branch of Bank of Cyprus. Photo: Reuters

It looks entirely possible the deal that would legally take money from ordinary savers' bank accounts in Cyprus may collapse.

If it doesn't happen, the country is without a deal to save it from financial collapse. If it does thousands of ordinary people will be significantly worse off, and have had their faith in the government and banks destroyed.

But perhaps the real problem is that having raised the possibility that the government will simply reach into people's bank accounts and take their cash, even if the deal does not happen and a new promise is made to protect their cash, who would trust the banks now?

Demonstrators raise arms as the convoy of the Cypriot President drives to the Parliament. Credit: Reuters

It may well be too late to prevent a savage bank run when the country reopens its banks on Thursday.

One senior trader told me: "Whatever the outcome, depositors will not trust the banks and there will be a run. There was little confidence in the banking system before, and this is the final straw.

"The run is unavoidable, the question is where will the money go and who will take it."