> The second error is one of equity. There is an argument to be made over the principles of bailing in uninsured depositors. And there is a case for hitting everyone in Cypriot banks before any taxpayer in another country. But there is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched.
Typically, as you impose losses for burden sharing, you start with equity as the most highly risky capital, move to debt, and after that move to depositors. The reasoning is that this underlines basic choices about who is taking risk; equity investors have the most risk capital, bondholders are right behind them (based on the structure of the bond) and depositors are the lowest; philosophically this is because as an investor in equity/debt it's your job to evaluate the bank's chances of failure. As a depositor, you just want somewhere to park your savings.
Bad deal.