As savers’ deposits in Cyprus banks are about to get raided by the Cypriot government, Wilbur Ross, WL Ross & Co. chairman & CEO, explains how overexposure to Greece helped create the current Cyprus bank insolvency crisis that is quickly escalating. In an interview with CNBC, Ross called the banking system of the small Mediterranean island ‘artificial’ and warned about the dangers of forcing depositors to take a loss on their accounts.
“Cyprus is not a place we would go into because the banking system is quite artificial with all the money out of Russia”, Ross said. “Total bank assets are 9X as big as the entire GDP of the country, so that just tells you right off the bat how artificial it is. And all that extra cash is what caused the trouble. They had to find a place to put it because it was all purchased money. They bought a lot of Greek debt. When Greece got into trouble they doubled down. They bet wrong. So that’s what led to this crisis.”
When asked about the risks associated with the Cyprus scenario, in terms of this being the first time that a EU government has reneged on a guaranteed deposit scheme, Ross said that to the degree it spreads, that could be a serious problem.
Full Ross clip