The bank depositor tax unveiled as part of an international bailout for Cyprus is "a bad decision" that undermines the EU banking system, the IIF global banking group says.
Hung Tran, a senior official of the Institute of International Finance, slammed Cyprus's plan to tax deposits, required by the European Union-European Central Bank-International Monetary Fund "troika" in exchange for their rescue of the island nation.
"We think that it is most unfortunate that the leaders in global finance, including the troika and the Eurogroup leadership, somehow came up with a bad decision," Tran told AFP on Monday.
"Even though Cyprus is a small country, the way leaders in Europe and the troika set about dealing with the problem, they set a very bad precedent ... they undermined the sanctity of insured deposits.
"The damage appears to have been done."
The weekend decision violated the European Union's mandate of a minimum guarantee for bank deposits across the 27-nation bloc, said Tran, the first deputy managing director of the IIF, which represents more than 450 financial institutions in more than 70 countries.
"That undermines the credibility of such a deposit insurance scheme in the future, making the task of using deposit insurance as a tool to stabilise banking panic and banking crisis more difficult," he said.
"That principle should be strengthened and restored somehow."Tran noted the Cypriot plan had already had a negative impact on financial markets and was fuelling worries about fresh banking troubles in other weak EU countries.
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