Coming to a country near you?

If you're going to hide money overseas, you should at least do so in a country that's stable enough not to pull a stunt like this.

Cyprus and its international lenders have agreed to convert 47.5 percent of deposits exceeding 100,000 euros in Bank of Cyprus to equity to recapitalize it, banking sources said on Sunday.

Under a programme agreed between Cyprus and lenders in March, large depositors in Bank of Cyprus were earmarked to pay for the recapitalisation of the bank. Authorities initially converted 37.5 percent of deposits exceeding 100,000 euros into equity, and held an additional 22.5 percent as a buffer in the event of further needs.

"There was an agreement concluding at a final figure of 47.5 percent this morning," a source close to consultations told Reuters.

I doubt anyone is ever going to deposit money in Cyprus again. I wonder if the lenders would behave the same way with respect to Spain or England.... You see, this bailout was actually imposed on them by the European Union's finance ministers.

According to a recent blog by Paul Krugman, the decision imposed by EU finance ministers to force depositors in Cyprus to take a loss, in order to help fund an International Monetary Fund and euro zone bailout, on their deposits may potentially cause a bank run in other EU countries. Depositors in Spain and Italy and elsewhere may become concerned that they will also lose their funds and withdraw ahead of any such impositions. Other economists at leading banks, including Morgan Stanley and Citigroup, have voiced similar concerns.

Ouch.