Monday, March 25, 2013

South Cyprus and the Rise of the Fearful Investor

South Cyprus has avoided a banking fiasco, with the EU developing a plan at the last hour to save the country from a downturn. Unfortunately, it's coming at the expense of some investors. Bondholders and depositors with investments of a benchmark amount will incur losses to help save the large banks. This has naturally angered many customers and an atmosphere of uncertainty has tainted the image of the banking industry.

This pessimistic view is understandable and has been the norm for some time now. The accounting scandals that hit the U.S. during the early part of this century triggered scorn for corporations and their executives. CEO pay was brought to the limelight and the accounting field was targeted. Fast forward eight years and it was the investment sector and big banks that became the new enemy. Talk of additional fees potentially being waged on customers to help pay for losses, federal bailouts, and tighter lending policies turned away many investors. And we're still paying the price of consumer skepticism.

And that was only within those groups who could afford to invest. The campaign of recent years to win over low income households and train them to be more financially saavy has not gained the ground it deserves, especially with all the time and resources that have been dedicated. Groups who have historically avoided using the financial tools available to them, namely women and the poor, are just not interested in investing. Part of it has to do with the lack of money to risk and part because they don't trust investors. And that's understandable because they have been subject to unequal treatment and abuse.

The finance sector should expect another hit, and not only the one confined to south Cyprus. As the nation begins its ascent to recovery, the world is watching and they are worried about their money, the economy and their future. With another country needing a paycheck, you can't help but wonder who is next. The financial sector will now have to work more diligently to win back the respect and confidence of their recent and potential customers.

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