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Another way to make depositors share the pain would be to convert long-term deposits into bonds with stretched-out maturities.

It is possible that the next time the crisis on the continent intensifies, the memory of the Cyprus ordeal will make depositors a little more likely to pre-emptively move their money.

Deposit insurance can make depositors less vigilant about the quality of banks, increasing the likelihood that bankers will make bad gambles with depositors' money, as they did during the savings-and-loan crisis of the eighties.

The legal uncertainty would further hamper the banks, which would be loth to extend credit for fear they might yet be forced to make depositors whole.Foreign banks and pension funds holding weak economies' euro-denominated government bonds would suffer an effective default.

Not only would banking union make depositors indifferent about their bank's physical location, it would also lead to market discipline over euro-area sovereigns.

Importantly, this conclusion is not predicated on Greek exit: the prospect of capital controls like those implemented in Greece on 29 June 2015 will be sufficient to make depositors elsewhere skittish.

Similar(52)

The worry is that the European Union and I.M.F. have created a dangerous precedent by making depositors share in the pain of the bailout.

The financial crisis has made depositors happier to keep money in the bank, too.Lenders have long tried to coax savers to shift into higher-yielding investments.

The raising of the deposit guarantee limits in 1980 to $100,000, from $40,000, made depositors less concerned about the health of their institution, and made it easier for dying institutions to attract deposits.

Critics complained that the plan makes depositors wait for years to get their savings back, but Mr. Lavagna said it is the only way to end the freeze without putting the nation's tottering banking system at risk.

Advocates of a rate increase say it would not only help stanch a flow of money overseas in search of higher returns, but also bolster the baht and encourage consumer spending by making depositors wealthier.

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