RBA chief says Cypriot bailout not a blueprint
But Monday's agreement, struck hours before a deadline that would have triggered a collapse in the Cyprus banking system, was much better than the initial proposal, RBA governor Glenn Stevens told a forum.
The deal involved a radical plan to secure a €10 billion ($12.3 billion) bailout from European authorities without imposing losses on Cypriots with deposits worth less than €100,000.
Initial market euphoria from Europe's eleventh hour Cypriot bailout deal quickly gave way to fear after the head of the Eurogroup Dutch Finance Minister Jeroen Dijsselbloem suggested the deal could form the basis for future bailouts in the economically troubled zone.
Australia followed global markets lower with the benchmark S&P/ASX200 index on Tuesday ending down 0.8 per cent at 4950.2.
Adding to concerns, Cyprus reversed course and decided to keep its banks shut until Thursday. This cancelled an earlier decision to open most banks on Tuesday. The banking sector of the island nation has been in a 10-day lockdown for fear of a run on deposits.
After European markets closed, Mr Dijsselbloem's office sought to clarify the comments, saying Cyprus "is a specific case with exceptional challenges".
Mr Stevens told an Australian Securities and Investments Commission forum on Tuesday that global markets were in a "better place" now than they were a few days ago.
"The reconstructed deal, as I understand it ... is a better one than the initial proposal," he said.
"We've had a number of programs now. We've had Ireland, Greece, Portugal, Spain, Cyprus, and they're all actually a bit different. So I'm not sure if any one of them is clearly a template.
"And I suspect that the Europeans will be somewhat case-specific as they deal with these things.
Separately, Mr Stevens said changes to global bank regulations have been more difficult than anticipated, with only Australia and 10 other jurisdictions so far adopting key parts of the reforms. Europe and the US are yet to make all the changes.
Rather than implementing global financial regulations, the emphasis should be on the implementation and monitoring of how the changes are helping or how they are hurting.
"Reforms that seemed so simple and obvious, so bold and so sweeping in the immediate aftermath of the crisis of 2008, have turned out to be harder to implement than first expected," he said.
The RBA governor said it would be years before the full effect of the reforms could be assessed.
Australia will be in a greater position to influence the progress of further regulation when it takes over the G20 presidency in 2014.
Frequently Asked Questions about this Article…
RBA governor Glenn Stevens said he doubted the Cyprus deal would be used as a single "blueprint" for other eurozone bailouts, noting that past programs (Ireland, Greece, Portugal, Spain, Cyprus) have been different and that Europeans are likely to take a case-specific approach.
The reconstructed Cyprus deal involved a plan to secure about €10 billion (roughly $12.3 billion) from European authorities while not imposing losses on Cypriot depositors with balances under €100,000, according to the article.
Australian shares followed global markets lower after the Cyprus developments, with the benchmark S&P/ASX 200 index falling about 0.8% to 4,950.2 on the Tuesday referenced in the article.
Initial market euphoria faded after Eurogroup head and Dutch Finance Minister Jeroen Dijsselbloem suggested the Cyprus deal could form the basis for future bailouts, a comment that raised concern before his office clarified Cyprus was a specific case; Cyprus also extended a banking shutdown, adding to investor unease.
Cyprus reversed an earlier plan to reopen most banks and decided to keep them shut until Thursday, extending a roughly 10-day lockdown of the island nation's banking sector amid fears of a run on deposits.
Stevens said major banking reforms have proved harder to implement than expected: only Australia and about 10 other jurisdictions had adopted key parts so far, while Europe and the US had yet to make all the changes, meaning it could be years before the full effects are assessed.
Yes — the article notes Australia expected to be in a greater position to influence the progress of further regulation when it takes over the G20 presidency in 2014.
Key takeaways are that bailout arrangements can be case-specific rather than one-size-fits-all, market reactions can be swift and volatile (as seen in the ASX200 drop), and regulatory reforms take time to implement and assess — so investors should watch regulatory developments and broader market sentiment tied to European banking news.
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