All major indices in Asia, Europe, the UK and the US were in the red on Monday because of concerns over a radical, unprecedented plan to impose a tax on Cypriot bank deposits. The proposed bank account tax will be used to help bail-out the nation's large banking sector.
"Under the current plan, those with more than €100,000 in one of Cyprus’s banks will be hit with a 9.9% charge, while depositors with smaller amounts will see a 6.75% one-off tax," explained Gerard Lane, an analyst at Shore Capital. "The move marks the first time in the eurozone debt crisis that depositors in any member country have been required to take a haircut on their bank holdings."
The move prompted a bank run in Cyprus, with people rushing to withdraw as much money from their accounts as possible. Market commentators and investors are now buzzing over the possibility that this proposal will result in bank runs in other weaker eurozone nations.
“Even if policy-makers now row back from taxing small depositors in Cyprus [which is] likely, the damage has been done," said Tristan Cooper, a sovereign credit analyst at Fidelity Worldwide Investment.
“This is unlikely to trigger immediate bank runs in other peripheral countries. This is because systemic banking vulnerabilities have already been addressed in Ireland, Spain, Greece ... and Italy's banking sector is not the primary source of macro-financial risk. However, the Cyprus decision does make it more likely that depositors will take fright whenever future Troika bailouts loom and banks are vulnerable," he said.
In London, the benchmark FTSE 100 index took a steep dive in the morning, but recovered throughout the day. At the close of the trading day, it was 0.5% lower at 6,458. The mid-cap FTSE 250 index also dropped down and closed 16 points lower, or 0.1%, at 14,090.
Meanwhile, shares in Marks & Spencer Group (MKS) soared ahead by nearly 7% after the Sunday Times reported that the Qatar Investment Authority was planning on making a bid for the British retailer.
To see the top winners and losers on the FTSE 100 each day, check out Morningstar's Heat Map.
