Dutch Finance Minister Jeroen Dijsselbloem (leader of Eurogroup Finance Ministers) helped tank the markets midday when he said that the Cypriot plan was a "template" for Europe.
What does that mean? It seems to mean that if a bank needs to recapitalize, it should go first to bondholders and shareholders, then to uninsured deposit holders...before they consider a bailout from the Troika (ECB/IMF/EU).
In other words, he is implying that uninsured deposit holders may now routinely be hit before any bailout, or at least at the same time as a bailout.
Whether or not Mr. Dijsselbloem's sentiment was accurate or not (I'm sure you will see "clarifications" shortly), this plays into the hands of those who have said this is a sea change in attitude.
Olly Burrows, who covers European banks for Rabobank in London, put the risk succinctly: "...this very real risk of bail-in should raise the cost of credit considerably. Can anyone say with confidence that further troubles in an already weak bank, or in a difficult economy, would not be treated in the same way? When Banking Union is in operation, all European banks will HAVE to be dealt with in a similar manner. Cyprus may be unique, but bail-in of Laiki is not. It is merely the first."
The idea of average citizens pulling money out of Italian and Spanish banks may be a bit more likely now, but the bigger risk is corporate money and further North/South polarization. Why wouldn't a corporation consider moving money from a southern European bank to a northern European bank, or to a U.S. bank?
—By CNBC's Bob Pisani