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BREAKINGVIEWS

Botched bailout lifts veil on banking confidence tricks

Reuters Breakingviews delivers agenda-setting financial insight. Its global correspondents react to stories as they develop, delivering sharp and provocative commentary on big financial news as it breaks.

Modern banking depends on two confidence tricks. Banks tell customers they can withdraw all their cash when they want and governments pledge to step in if anything goes wrong. The problems in Cyprus show that both promises are sometimes broken. The breach of faith is not only a problem for the state’s 800,000 inhabitants, but sets a worrying precedent wherever there are too many banks and an overindebted government. The question is what can be done to restore faith in the system – or to promote a more stable alternative.