Cyprus will lose access to ECB liquidity support, implying de facto exit from monetary union, if the country fails to agree a revised deal with the EU / IMF. Some commentators, however, have suggested that a liquidity crunch will occur even if the Cypriot government bites the bullet, on the grounds that the deposit base of the banks will vanish as soon as their doors reopen, and the ECB will be unable or unwilling to plug the gap. This latter scenario is unlikely.

Deposits of euro area residents, excluding banks and the central government, with the Cypriot banking system stood at €47.4 billion at end-January, according to the ECB. Of this, €10.4 billion was available for immediate withdrawal, with the remainder in term and notice accounts. Cypriot banks also had deposit liabilities of €21.4 billion to non-Eurozone non-banks at the end of the fourth quarter (the latest available datapoint). If the ratio of instant-access to total deposits is the same as for the Eurozone portion, the implied amount available for immediate withdrawal is €4.7 billion. This suggests potential deposit flight of about €15 billion next week*.

This is an upper limit because 1) some deposits will be frozen if bank restructuring proposals under discussion are adopted, 2) some withdrawals are likely be redeposited at “safer” banks operating in Cyprus, 3) some depositors will not have a foreign account into which to transfer funds (and may be unable to open one) and 4) some may be reluctant to withdraw the full amount in cash (if this is permitted).

The total assets of the Cypriot banking system stood at €126.4 billion at end-January, according to the ECB. Allowing for a much lower true value, there should still be more than sufficient collateral to allow the ECB to advance funds to cover the likely outflow, taking into account the looser requirements for “emergency liquidity assistance” compared with normal monetary policy operations.

The risk with any deal is not that it will be undermined by a bank run but rather that – like the original agreement – it will collapse within days amid further political and social unrest.

*Cypriot banks also had interbank liabilities of €24.6 billion to other Eurozone institutions and €13.6 billion to non-Eurozone banks on the latest figures but part of this will again be on a term basis, while banks are less likely to withdraw funding if a deal is agreed.