Before Cyprus Flared Up, One Analyst Warned Us It Was The Scariest Thing In The World

To put it into context, this was when everyone thought there were basically little or no tail risks to worry about anymore – Europe had been squared away by European Central Bank President Mario Draghi's promise to do "whatever it takes to save the euro," U.S. economic outlooks were improving, and fears of a "hard landing" in the Chinese economy were steadily fading.

Needless to say, against that backdrop, we got some pretty interesting submissions.

One of them was from Gabriel Sterne, an economist at the frontier markets brokerage firm Exotix.

Sterne submitted a chart that wasn't being talked about too much at the time.

Cypriot deposits.

Here's what Sterne told us:

Pea-size Cyprus (GDP around €18bn) is causing European princesses sleepless nights. Relative to GDP, it could yet be the most expensive bank bailout of all time, most of which caused by operations in Greece. International policymakers – with all the nimbleness of oil-tankers and far more leaky – are discussing depositor haircuts. If and when they decide to implement, there would be few deposits left in the most afflicted bank (Laiki). In the meantime, that 8-month European distressed asset rally is in jeopardy.

Prescient.

Below is the chart.

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