Martin Wolf and Chris Dillow on Cyprus.

Excerpt from Martin Wolf’s article in today’s Financial Times:

“Many insist that any tax on deposits is theft. This is nonsense. Banks are not vaults. They are thinly capitalised asset managers that make a promise - to return depositors’ money on demand and at par - that cannot always be kept without the assistance of a solvent state. Anybody who lends to banks has to understand that. It is inconceivable that banking - a risk taking financial business - can operate without exposure to loss of at least some classes of lenders. Otherwise, bank debt  is government debt. No private business can be allowed to gamble with taxpayers  money in this way. That is evident.

The question than, is not over the principle that lenders can face losses. It is about which of them should do so and to what extent.”

Chris Dillow.

Chris makes the valid point that depositors in Cyprus may be shafted simply because they have less political power than other players: bond holders, shareholders, etc.