Both Kind of Bank Bailouts Suck
The Fed loaned money with no haircuts required to accounts in the Cayman Islands. I was furious as were many, who believed that the Fed was selling out the USA and the taxpayer. I wanted a piece of the bank bondholders and knew uninsured depositors should be at risk.
Well, I got what I wanted, not from the Fed, but from the ECB. This Cyprus resolution was a classic bank resolution. But now that I think about it, I am not so happy about this method of resolution either.
After all, the ECB put more risk into the banking system than did the Fed. People now will likely hide some money under the mattress, simply because the Eurozone banks are potentially risky places to keep a hoard of cash. And what about contagion to US banks?
So, why didn't the Fed help the ECB out more?