The latest flare-up in Europe is reminder that Europe’s banking system still has a number of weak spots. So far, markets in the U.S. haven’t exhibited much concern –at least not up until this point in time.

Last weekend, Germany and the International Monetary Fund (IMF) agreed to bail out insolvent banks on the Mediterranean Island of Cyprus to the tune of €10 billion ($13 billion). But an additional €5.8 billion was needed, which was to be supplied by a tax on depositors ranging from 6.75% to 9.9%, depending on the level of deposits.

Since deposits less than €100,000 are insured, an uproar on the island ensued, forcing the country’s Parliament to reject the tax. Meanwhile, concerns surfaced that deposits in troubled nations like Spain or Italy might one day be subject to such a levy, which could result in destabilizing bank runs.

Having loaded up on Greek debt, Cyprus’ banking system is insolvent and will collapse without aid.

Though the nation is small, with a Gross Domestic Product of just $18 billion (about 0.2% of total euro-zone output), its banking system, with $164 billion in assets, is not (Bloomberg).

Despite the alarming tone of the headlines last week, stock and bond market reaction so far has been fairly muted. We are seeing nothing like the swings that occurred back in 2011. In other words, the “collective wisdom” of the market is suggesting, at least for now, that the problem is limited to Cyprus.

The deadline set by the European Central Bank for Cyprus to acquiesce was yesterday, March 25th, and an initial agreement was reached.  Deposits under the €100,000 mark would be covered, while shortfalls will be made up from deposits over the €100,000 mark as well as equity and bond holders.  Details are to be hammered out but concerns continue to linger. Euro-zone banks are still undercapitalized (BCA Research), and the ongoing European recession is placing unwanted stress on an already fragile banking system. Nevertheless, ECB promises of liquidity have prevented a more serious crisis from developing and have bought time for policy makers to enact reforms.

What’s This Mean for Us?

This could set a dangerous precedent for future “bailout” situations, both in the Eurozone as well as other parts of the world. “In 147 banking crises since 1970 tracked by the International Monetary Fund, no depositors, irrespective of the amounts held and the banks with whom the deposits were placed, suffered losses.” (  It appears now more than ever it is very important not hold any deposits within one institutions that exceed the FDIC insured limit.

Sunnier Skies

At home, the U.S. economic data continue to paint a brighter picture. Weekly initial jobless claims held below 340,000 for the second-consecutive week, making it the first time since November 2007 claims have held below that level for two-straight weeks (Dept of Labor).

Housing continues to gain traction, with housing starts and building permits rising once again, while existing home sales in February rose for the fourth month in five and hit a 3-year high (NAR).

Meanwhile, the Federal Reserve meeting last week ended with little fanfare. Policy makers acknowledged the economy is expanding at a modest pace, and its bond buying program will continue at a rate of $85 billion per month.  Fed Chief Ben Bernanke seemed to hint in his press conference that the Fed may soon dial back on the purchases, but he emphasized the Fed is looking for sustained improvement in job creation. Previously, payroll growth has displayed some promise, only to pullback after a short spurt.

Upcoming Training

The first quarter is quickly coming to a close.  We will be offering special training classes in April covering  online access to your account and all the information that is available to you.  We encourage you to bring your own laptop, iPad, or any device you might use to access your account.

Training Dates are:

  • Thursday, April 4th: 10:00AM
  • Tuesday, April 9th: 3:00PM
  • Wednesday, April 10th: 4:00PM
  • Friday, April 12th: 10:00AM

There will be ample question and answer time and seating is limited, so be sure to call and make your reservations today!

Easter Holiday Schedule

The U.S. stock and bond markets will be closed this Friday in observance of Good Friday, so our offices will be closed as well.  We wish all of you a very Happy and Blessed Easter holiday.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.



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