Too soon for an epilogue, but it appears that the Cyprus bank situation is settling out.  In summary:

• People who deposited big sums of money in uninsured accounts will take a big haircuts
• Insured deposits less than 100,000 Euros remain whole
• No bank run – perhaps due in part to limits on withdrawals

All things considered, it could have been a whole lot worse.  (Beware false equivalences but, if Iceland is to be a model for Cyprus, four and a half years after their banking crisis Iceland seem to be on the road to recovery – see also here.)

References:

Paul Krugman, 3/22/2013:

Well, it looks as if the Icelandization of Cyprus — at least in the sense of making offshore depositors take a big hit — is happening faster and more decisively than I feared…

NY Times, Some Savers in Cyprus May Lose 60 Percent, 3/29/2013:

Big-ticket savers [note: a large fraction of whom are apparently foreigners] at the Bank of Cyprus may be forced to accept losses on their deposits that exceed 60 percent in order to keep the stricken bank afloat, bankers briefed on the negotiations said on Friday.

The more sizable haircut, coming soon after the imposition of tough capital controls, is the latest and perhaps most profound reminder of the financial punishment being visited upon this small island economy as it struggles to comply with the conditions that Europe is demanding of it before it gets a desperately needed 10 billion euro loan.

Europe has demanded that large depositors in the country’s two largest banks — Bank of Cyprus and Laiki Bank — accept across-the-board losses in order to pay for the 17 billion bailout.

Over the past week, government officials have been saying that depositor losses would not exceed 40 percent — even though bankers and lawyers involved in the negotiations have been warning for some time that the final figure would need to be higher if the bank was to re emerge as a viable entity.

Under the terms of the transaction, large depositors would have 77.5 percent of their savings turned into different forms of equity. 37.5 percent would be direct equity, in the bank with the rest coming in the form of securities that may convert into shares at a certain period. The remaining 22.5 percent would be a frozen, non-interest-bearing deposit that they would be able to access in the future.

As a result of this arrangement, the bank’s largest depositors will initially become its major shareholders.

If the bank does well, depositors would be able to sell their stock. But even in the best case, in which the bank thrives on the back of a quickly recovering economy — a long shot most economists believe — the loss is likely to exceed 60 percent and could well be much more than that.

Lawyers and bankers who have analyzed the transaction believe the ultimate loss to the depositor could be anywhere between 60 and 77.5 percent.

The moral of this story is not complicated:  If someone offers you an investment opportunity which sounds too good to be true then it probably.  If you let you’re greed get the better of you then be prepared to suffer the consequences.

NY Times, Long Lines as Banks Reopen in Cyprus, 3/28/2013:

As Cyprus cautiously cracked open the doors of its crisis-ridden banks on Thursday, Stelios Sofroniou, a pig farmer, fumed at being able to withdraw only 300 euros, about $385. That would buy one ton of feed, not the 30 he needed for his 15,000 increasingly hungry pigs…

He cursed the strict new controls that for at least the next week will give him access to only a tiny portion of his money and stop him from cashing checks freely or using his bank to pay suppliers who use different ones.

Across Cyprus, fears that the reopening could lead to a bank run gave way Thursday to conflicting emotions: relief that bank doors were at least open again, but anger over the new rules, which allow deposits but tightly ration withdrawals.

The restrictions are meant to keep customers from draining their accounts in the wake of the bailout deal announced Monday morning in Brussels. European leaders hailed the deal as saving Cyprus’s teetering banks — and the country as a whole — from collapse.