April 09, 2013
The International Bank Heists Have Begun. Last month, the financial press churned out a veritable encyclopedia-length discourse on the death of Cyprus’s financial sector. However, one glaring question remains: How did everybody miss it? Actually, the puzzle is far more perverse, because not only did the experts fail to foresee the Cypriot banking debacle, these very professionals who were responsible for recognizing the good banks and rooting out the bad ones were, in fact, lauding Cypriot banks throughout their entire decline.
The chart above depicts a sampling of the accolades that the global finance community bestowed on the Bank of Cyprus during its six-year trek into insolvency. Starting with the bank’s 2008 award for best bank from Global Finance Magazine, the trail of tributes continued in 2009 and 2010, when the bank received quality recognitions from The Banker magazine and JP Morgan Chase. Even as late as 2012, with the bank’s shares down 98% from their all-time high, the Bank of Cyprus still received a 2012 private banking award from the internationally renowned financial journal Euromoney. The Bank of Cyprus website described its bookending tribute from Euromoney this way: “This is yet another major international distinction which confirms the successful path taken by the Bank of Cyprus Group, placing it among the world’s top financial institutions offering private banking services.”
The startling irony is that the bank’s description is exactly correct. Thanks to an entrenched system of fractional reserve banking, most of the world’s top financial institutions are fundamentally no sounder than the Bank of Cyprus. Few investors cared when authorities suspended trading in the bank last month. However, this widespread obliviousness will shift dramatically as the Continent’s larger, more well-known banks follow suit.
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