Re:Cypriot Bailout Sends Shivers Throughout the Euro Zone
by brisance on Sunday March 17, 2013 @08:17PM
(#5391701)
Not trying to be a pedant here, but it's not generally true that stock holders lose money if a company goes bust. Lots of publicly listed companies file for Chapter 11 or some form of bankruptcy protection to tide over cash flow problems. The comparison is not quite right although your point is clear.
In a theoretical free market, depositors would lose all their money if a bank goes bust, just as stock holders lose their money if a company goes bust.
Banks, however, hold a particular role in a modern economy that regular companies don't. As such, deposit insurance is a necessity for overall financial stability. In the case at hand, the decision by the Cypriot gov't to effectively cancel deposit insurance for smaller depositors is their biggest mistake, since it decreases confidence in both the banks and the gov't.