Who pays in Cyprus?

Cross-posted from FTAlphaville.

The “stability levy”/”bail-in” for depositors in Cypriot banks might not come to passin quite its original, burning-everyone-almost-equally form, thanks to the small matter of democratic politics.

But let’s go with what we’ve got so far: the under-€100k deposits will be taxed 6.75 per cent, and over-€100k will lose 9.9 per cent.

Out of the aggregate €5.8bn to be raised from deposits, how much would come from smaller depositors, and how much from bigger?

Clearly a bit of thought went into this when the bail-out was being discussed. Burden allocation, and all that. Although perhaps not quite as much thought as was needed — and as Joseph just explained, the stark arbitrariness of these original tax rates is likely what has the politicos racing to make them more progressive.

Anyway, Antonio Garcia Pascual and Laurent Fransolet at Barclays have taken a stab at estimating how much of Cyprus’s total deposit base falls into the €100,000-plus category:

Based on the expected size of the levy and the overall deposit base, we would estimate that about 55% of the deposits (EUR 37.6bn) fall into deposits above the €100,000 category. Assuming that the bulk of the foreign deposits are in that category (25.5bn) suggests that about €12bn of the domestic deposits are above €100,000, probably mainly those related to non-households in Figure 2. Thus, most of the domestic household deposits are likely to be subject to the 6.75% tax rather than the higher one.

We’ll take Barclays’ estimate that 55 per cent of deposits in Cyprus are €100k+, and estimate how much of the total €5.8bn is coming from smaller depositors. For comparison, we’ve applied the same 55 per cent-over-€100k estimate to the “bail-in” described by the FT’s story, which mentions 12.5 per cent for €100,000-plus deposits, and 3.5 per cent for deposits below that.

Here it is in a pretty green graph:

So, there you have it.

Changing the ratios would be significantly more progressive, obviously. We’ll find out soon whether such a change will indeed be made, and (just as important) whether it would still get enough votes to pass the Cypriot parliament.

Incidentally, the percentage needed to get the sub-€100,000 deposits to zero is 15.5 per cent, in case you’re curious (again using Barclays’ estimate):