WASHINGTON, March 18 (Reuters) - A proposal to include a tax on insured bank deposits in Cyprus sets an "incredibly dangerous precedent" and undermines confidence in Europe's handling of the euro zone crisis, the head of a global banking association said on Monday.
Tim Adams, managing director of the Institute of International Finance, said a weekend announcement that Cyprus would impose a one-off tax on bank accounts as part of a 10 billion euro bailout by the European Union had reignited concerns over the euro zone crisis.
The announcement broke with previous practices that depositors' savings were sacrosanct. Cyprus will vote on the decision on Tuesday.
"Crossing the Rubicon of addressing insured deposits and undermining the explicit guarantee - you can call it a tax or whatever you want - but essentially the broken guarantee opens up lots of different possibilities for destabilizing effects in the short term, medium term and long term," Adams told Reuters in an interview.
"The next time there is a crisis in any one of these countries, depositors are going to ask themselves, why am I going to stick around to see if the same set of rules are applied or not? I do think it is an incredibly dangerous precedent, without question," he added.
The IIF is the world's largest international lobbying group for financial firms, with more than 450 members. It was the lead negotiator for private-sector creditors during Greece's private debt write-down last year.