Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Why Cyprus (Probably) Can't Happen in the US

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One of the reasons the crisis in Cyprus has had limited market effects is that something like that would be unlikely to be repeated in the U.S.

That's not to say it could never happen. The truth is, there have been bank runs pretty much as long as there have been banks, so a liquidity crisis certainly could hit American financial institutions and cause substantial damage. But as a matter of scale, the problems in Cyprus are far worse than anything likely to wash up on U.S. shores.

"All things considered, it is extremely unlikely that depositors at U.S. banks would ever suffer losses in the event of a bank failure," said Paul Ashworth, chief U.S. economist at Capital Economics. "For a start, U.S. banks are better capitalized and the banking sector is a much smaller part of the overall economy."

(Read More: Cyprus Banks Reopen, Under Tight Controls)

In a report for clients, Ashworth compared the Cyprus situation to the volatile banking sector in the U.S. and concluded that there's little to fear of a repeat performance.

For one, American bank deposits comprise a relatively small 93 percent of gross domestic product, compared to 716 percent for Cyprus.

On top of that, U.S. banks have enough reserves to pay their debts, and the largest institutions recently held up well under Federal Reserve stress tests.

Cyprus Banks Reopen

Another problem that Cyprus has is a large concentration of assets in its two biggest banks, which had wrong-way bets in Greek debt.

Coincidentally, the closest recent U.S. corollary is with MF Global, the once-powerful broker that collapsed due to liquidity issues also caused by Greek debt investments. In that case, account holders took a hit.

In the regular banking sector, though, the Federal Deposit Insurance Corp has enough capital to backstop deposits of up to $250,000 in the case of bank failures.

(Read More: Worried About the US? Hey, It Beats Other Places)

That's the good news.

The bad news is that a financial crisis that in any way resembled the subprime meltdown in the last decade or the debt crisis still making it's way through Europe can still cause substantial damage in the U.S.

"Deposit guarantees have been a longstanding feature of the US banking system through the FDIC," Ashworth wrote. "Breaking those guarantees would presumably result in a run on other banks."

"Nevertheless, unsuspecting creditors could be on the hook if other financial institutions failed, including money market mutual funds or broker/dealers," he added.

In the case of a complete bank meltdown, it's possible "in theory" that depositors would be required to chip in since they have taken on a huge proportion of bank liabilities.

Ashworth pointed out, however, that the upside to that is deposits have increased so much that banks rely less on the short-term loans that helped create the financial crisis.

"Buoyed by their reserves held at the Fed, U.S. banks now hold enough cash to pay off all of their remaining borrowed funds," he said.

As for investors, they seem to be buying both the theme that a Cyprus-like crisis can't happen here, and that the euro zone problems won't take down U.S. stocks, with the hitting a new record Thursday.

(Read More: Rally Like a Broken Record as S&P Scores New High)