Expats urged to diversify their assets in wake of Cyprus banking crisis

by Ray Clancy on April 11, 2013

Expats urged to diversify their assets in wake of Cyprus banking crisis

Expats urged to diversify their assets in wake of Cyprus banking crisis

Recent events in Cyprus mean that expats, wherever they live, need to understand to what extent they are protected in the event of financial institutional failures, according to advisors. ‘No one can think of bank deposits as a risk free home for their money anymore. We need to consider all the risks to our money, even those not fully appreciated in the past, and take professional advice to ensure our assets are in the best place,’ said a spokesman for international wealth advisors Blevins Franks.

The firm points out that deposit guarantee schemes vary from jurisdiction to jurisdiction and expats need to be aware of what applies to their situation. For example, many people who bank in the Isle of Man and Channel Islands do not realise they have a lower level of protection than in the UK and European Union, with a compensation limit of just £50,000.

In general advisors say that expats should diversify their investments. ‘Cash is just one asset. You need to spread your savings among different assets, different funds, different sectors etc, possibly even over different managers, to spread the risk. Relying on just one asset is very risky,’ said Belvins Franks. ‘Secondly, you should look to ring fence your assets where possible, so that there is a legal separation of your assets from the financial institution holding them. This will protect your money from institutional failure,’ the firm adds in its latest advice.

‘The events in Cyprus shocked bank depositors across Europe and beyond. It was a wake-up call for anyone who still thought of cash as a risk free option,’ it says. There is still a lot of confusion about what protection people have. In the eurozone amounts up to €100,000 are protected under the Deposit Guarantee Scheme. However, Blevins Franks points out that the decision in Cyprus to deduct a large levy from bank deposits has rather undermined the principle.

It is still not clear in Cyprus how much above €100,000 will be lost with reports indicating between 30% and 40%, but anything below is protected and capital controls are also now being imposed in Cyprus. ‘Banking is about confidence and trust, and this has been severely dented. On the positive side, the €100,000 guarantee held up, even if it took a public backlash and criticism from across the world to get there. Savers now know deposits under the guarantee limit could potentially be taxed, but considering the reaction to the original Cyprus proposal it is hard to imagine that this route would be taken,’ says Blevins Franks.

Quote from ExpatForum.com : “Specifically, I am asking whether an account with Bank of Cyprus UK would suffice for all banking needs (Direct Debits, Standing Orders etc) in Cyprus. If so, it would seem sensible for us to open an account here now, in order to build up some sort of customer relationship before moving out to Cyprus in 2 years time.”

There have been concerns that the kind of levy imposed in Cyprus could be used elsewhere. Chairman of the Eurozone, Jeroen Dijsselbloem, has acknowledged that the heavy losses inflicted on depositors in Cyprus could be the template for future banking crises across Europe where banks cannot recapitalise themselves. However, Spain’s Prime Minister, Mariano Rajoy, stated that he is not in favour of people losing their own deposits, because they are in no way responsible for what has happened.

Blevins Franks says expats should be wary about holding more than the guarantee limit in any one bank. ‘At the very least you need to be aware that this has a much higher level of risk,’ said a spokesman.

{ 1 comment… read it below or add one }

Bank Bailouts May 28, 2013 at 3:57 am

This may sound selfish but I think it is much better if the other Eurozone countries would just let the Cyprus bank to go bankrupt. Just come to think of it the taxpayers of the Euro-countries, which have absolutely nothing to do with the Cypriot bank mismanagement, have to cough up billions of hard earned Euros.

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