LONDON, March 18 (IFR) - The cost of insuring the debt of
European banks against default rose sharply on Monday after an
unprecedented plan to tax Cypriot depositors to help save the
Credit analysts said the decision could spark contagion
across peripheral regions with the potential of widespread
outflows of depositor cash from banks.
By 0750GMT, the European Markit iTraxx senior financials
index was 17bp wider at 161bp, while the subordinated index was
23bp wider at 268bp, according to Markit.
The shock levy was announced over the weekend on all Cyprus
bank deposits, and will raise around EUR6bn.
The move comes as governments and regulators have already
begun to impose more aggressive losses on bondholders, evidenced
most recently in the total wipeout of SNS Reaal subordinated
bondholders earlier this year.
"The expropriation of SNS Reaal subordinated bonds, the
imposition of losses on Anglo Irish senior bonds, and the
haircuts of depositors in Cyprus form an ominous trend,"
Barclays credit analyst Jonathan Glionna said.
"Bondholders need to focus even more closely on existing
national resolution frameworks and the Crisis Management
Directive in Europe."
Riskier frameworks are in place in Switzerland, the UK, the
Netherlands, and Germany, Barclays said.
Barclays also said the depositor levy raised the possibility
of bail-in for senior bondholders to be moved forward to 2015
(Reporting by Natalie Harrison, IFR Markets; editing by Alex