Article Summary In What Is Being Called a "Bail-In," the Finance Ministers

question 7

Multiple Choice

Article Summary
In what is being called a "bail-in," the finance ministers of the 17-nation Eurozone agreed to step in to assist the banking system in the nation of Cyprus. With this arrangement, the banks receive an infusion of capital, but depositors are being changed a special bank levy of up to 10% on deposit accounts. Like in the United States, Cyprus does have deposit insurance which guarantees deposits up to a certain level, but the size of the debt owed by the Cypriot banks was so large that agreeing to the special bank levy and ignoring the deposit insurance seemed necessary to get support from the European Union. Some analysts have also stated that the levy may have been needed to prevent bank runs on foreign-owned accounts, which have been estimated to make up one-third of the total deposits in Cypriot banks.
Source: Megan McArdle, "After Cyprus Bank Bailout, Depositors Race to Withdraw Their Cash. Is the Rest of Europe Next?" Daily Beast, March 17, 2013.

-Refer to the Article Summary.In 2013,the European Union agreed to essentially bail out the banks in the nation of Cyprus,but in doing so also included what is being called a special bank levy which was changed to bank depositors.This levy may have been needed to prevent bank runs,which are situations in which

• A)a majority of the shareholders in a bank decide to sell off all their shares of stock.
• B)many depositors simultaneously decide to withdraw money from a bank.
• C)a majority of the bank's loans go into default all at once.
• D)a bank stops paying interest on all of its interest-bearing accounts.

---

Definitions:

Adaptive Forecasting

A method in forecasting that adjusts its parameters and methods based on real-time feedback and data to improve future forecasts.

Estimates Update

The process of revising predictions or calculations based on new information or changes to earlier assumptions.

Level

A specified stage or degree in a process, system, or ranking.

Systematic Component

The part of variability or patterns in data that can be consistently explained by identifiable factors, as opposed to random variation.