Who would lend money to a bank? Well, all of us - everyone who operates a current account. Under UK law money paid into your account is a 'chose in action' and becomes the bank's property. You become merely a creditor of the bank I was reminded of this last year - with the matter still not resolved - when I became the victim of card fraud. Or rather, the bank did. When the fraud department asked "Have you reported this to the Police?" it was a question intended to verify the validity of claims rather than to elicit a useful response; the banks know very well that the Police won't take reports of card fraud from customers, as I explained to the clerk on the phone "No - it's your job, not mine, to report it to the Police - it's your money, not mine, that's been defrauded".
It's a fundamental point, and one which I suspect is not readily apparent to account holders with Cypriot banks. The banks don't put your savings in a safe and guard them - they gamble them recklessly, squander them in ill-advised ventures and lend them to people who can't repay them, and at the end of it all if the firm becomes bankrupt you are just another creditor with a shared claim on what assets remain. The government, of course, have intervened by guaranteeing deposits up to a certain amount, but this is a policy, and not a legal obligation.
Max Hastings in the Mail today calls the Cypriot action "One of the nastiest and most immoral political acts in modern times" - that is, requiring the shareholders and investors to take the haircut rather than the taxpayer. Well, frankly, it's not. Those savings haven't been 'stolen', they've been mis-invested in firms (banks) with an inherent risk of failure. One balances the risk of lending one's money to a bank and its failing against the risk of keeping the cash under one's bed and its being stolen.
And this is the real danger of Cyprus; not the legality or morality of the action, but that it may propel investors across Europe to feel better protected with their cash hidden at home than on loan to a failing bank. Once a run starts, once confidence goes, the whole fractional reserve edifice inevitably comes tumbling down.