DNB ASA (DNB) Chief Executive Officer Rune Bjerke said Europe’s decision to impose a levy on Cyprus bank savings will add to the haven appeal of Norway, where deposit insurance is more than double the European Union’s.
“We have one of the most robust banking systems globally and one of the most super-protective regimes towards depositors,” Bjerke said in an interview in Oslo today. “Flight to quality and flight to Norwegian banks will be even more important in the quarters to come.”
Bank depositors in Norway are insured for as much as 2 million kroner ($343,707), or more than double the 100,000 euros ($129,400) EU savers are entitled to. Cypriot lawmakers are due to vote today on how to spread the burden of raising 5.8 billion euros from bank depositors to unlock EU emergency loans. The levy, whose initial structure called for a 6.75 percent tax on deposits under 100,000 euros and 9.9 percent over that amount, has sparked concern among investors about setting a precedent by breaking a taboo against raiding bank accounts.
The EU’s handling of Cyprus’s bailout has reignited the region’s crisis and revived demand for haven assets. Credit derivatives suggest Norway is the world’s safest investment, with credit default swaps on the nation’s debt trading below those of both the U.S. and Germany.
“We have been perceived as a flight to quality economy,” Bjerke said. “That position, of course, will not be slower or less significant after what we have seen in Cyprus.”
Europe’s rescue proposal for Cyprus is likely to hurt bank funding markets across the region, Bjerke said.
“I have a fear that the events in Cyprus will lead to somewhat wider spreads again and somewhat higher volatility,” he said.
Cypriot lawmakers, who meet at 6 p.m. in Nicosia today to debate how to spread the deposit charge among account holders, may shoot down the unprecedented levy, risking the island’s membership in the euro. The “feeling I’m having is that the house is going to reject it because they feel and think it isn’t just and that it’s against the interest of Cyprus,” Cypriot President Nicos Anastasiades told Sweden’s TV4 channel today.
The nation’s banks and stock exchange will remain closed at least until March 21 amid speculation lawmakers may postpone the vote that’s planned for later today. The 5.8 billion-euro raid on bank accounts, intended to cut the cost of a rescue package to 10 billion euros, sparked outrage when Cypriots woke March 16 after marathon talks in Brussels to find bank transfers blocked.
Finance chiefs from the 17-member euro area late yesterday urged Cyprus to spare small-scale savers, while keeping unchanged the size of their demand on account holders. While Cyprus accounts for less than half a percent of the euro area’s economy, the fight over the bank tax risks triggering new turmoil in the financial crisis that began in 2009 in Greece.
“I hope that what we have seen in Cyprus will not lead to a spread effect to other countries when it comes to deposit protection schemes,” Bjerke said. “What has happened in Cyprus is not helpful, put it that way.”
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