Cyprus Banks

Why are the finances of Cyprus important to the rest of the world?

Cyprus is a country in serious financial trouble. Recently its banks had to close their branches and many people are likely to lose some of their savings. But how can a bank go broke? Sarah explains.

One of the biggest news stories of last week came from a country called Cyprus. It's an island near Greece with a population less than that of Adelaide but what's happening there has been affecting stock markets all around the world. As Sarah finds out, it's a result of banks going broke.

BANK TELLER: Hello and welcome to BTN savings and loans how can I help you?

CUSTOMER: I'd like to make a deposit.

SARAH LARSEN, REPORTER: When we put our money in the bank, we expect to be able to take it out again whenever we want.

So imagine if this happened:

CUSTOMER: Hi, I'd like to get some money out.




CUSTOMER: But that's my money

BANK TELLER: Not any more, it's not. We're broke. We need your money to pay our debts.


BANK TELLER: Yeah, I know. Would you like a free pen? Have a nice day!

OK, so that's a pretty extreme example. But in Cyprus the problems are extreme. The banks here are broke. People can't get to their money. And they're angry. Cyprus is here in the Mediterranean. It's a small country but it has a big banking business. That's partly because taxes here are low and lots of people from overseas chose to store their money here. Now some are set to lose a lot because the banks of Cyprus made some bad investments

It might seem hard to believe that a bank could go broke. Many of us think of them as giant safes which keep our money for us until we need it. But that's never been the case. Banks do look after people's savings but they don't keep them locked away. They invest them by lending the money to others. The person taking out the loan has to make regular repayments with interest and that interest is pure profit for the bank. Banks lend a lot and the bigger the loan, the bigger the profit. They don't just loan to people, they loan to businesses and even to countries. And as long as the repayments keep coming in, there's plenty of money going around to satisfy the customers' daily banking needs.

CUSTOMER: I'd like to make a withdrawal please


But what if those who borrowed money stopped paying it back? That's what happened to the banks of Cyprus. They lent a lot of money to the Greek government when it was in trouble but Greece couldn't pay it back. If people find out a bank is in trouble they tend to want their money back all at once. That's called a run on the banks.

TELLER: I don't have your money! Greece has it!

To try to stop that, Cyprus' banks closed their branches. For weeks people had to line up to get just a little out of the ATM. The government of Cyprus asked other European countries for help and last week they said yes, with conditions. Cyprus would have to find some of the money itself and it's doing that by tapping into people's savings. People with more than 100,000 Euros in the bank will lose a big chunk of it. The money will be used to pay off the banks debts and the customers will only get it back again if the bank starts to make money. People with smaller accounts will get to keep their money.

While many in Cyprus are relieved that the banks are open again there are still limits on how much people can take out. And there are worries that what's happened here could affect banks in other countries. For a bank to do business it needs people's trust and people will stop handing over their money if they think it isn't safe.

Comments (11)

Add your comment

  • ilayda :

    18 Mar 2014 12:57:19pm

    its not true i have family at cypers and i know that

  • Rebecca :

    13 May 2013 10:45:37am

    Although you are not trust in banks, you still use lots of their services.

  • ben :

    07 May 2013 4:14:30pm


  • ximena :

    24 Apr 2013 12:00:32pm

    Wow Cyprus people seemed to be very angry at the bank.

  • Issy :

    16 Apr 2013 1:39:31pm

    I wonder why people won't stop giving money if they know they won't get it back.

  • Izaiah :

    16 Apr 2013 12:31:14pm

    governments must change the banking system!

  • anne :

    09 Apr 2013 4:32:17pm

    I do not think they are dealing well with this financial crisis All they are doing is just short term solution They are not solving fundamental problem. I am worrying we may have bigger crisis thanks to this short term solution.

  • Orhan :

    09 Apr 2013 12:44:41pm

    Governments must change the banking system.

  • Cherry :

    04 Apr 2013 5:18:24pm

    i don't think i can trust banks anymore!

  • sudip :

    03 Apr 2013 6:36:03pm

    banking ios not accounting you need economic prudence and vision
    it can happen to any country and even a small business if u act so fullishly

    • Daniel mineturtle :

      08 Apr 2013 4:38:00pm

      True. You need to pay your money back