The Banking Executive Magazine - May 2021

the BANKING EXECUTIVE 12 ISSUE 149 MAY 2021 LESSONS LEARNED Capital control should be a last resort mean. It may help in some cases at short or long term detriments. However in other cases it may be destructive and lead to economic collapse. Hence capital control should be supported by fair policies that can protect vulnerable people, be applied and removed moderately and gradually and accompanied by measures that can keep the business and economic activity up and running despite the challenges. If badly implemented, capital control may damage the banking system and reduce people trust in it and prevent inflow of capital and investment into the country. As we have seen, capital control gave the aspired good results in Cyprus, but in Greece it damaged the banking system and its repu- tation despite the fact that the two countries, Cyprus and Greece, implemented almost similar capital control measures. However in one country, Cyprus, they were beneficial and in the other country, Greece, they were destructive. Capital control was in some countries requested by entities, like the Troika (IMF, World Bank, and European Central Bank), offering bailout to help the local banking system. They might violate local and regional laws as in the case of Cyprus were capital control violated EU regulations. Capital Control implementation was sometimes imposed by security forces. This is of course oppressive to citizens, but unfortunately capital control is not an easy experience to banks and individuals. In some countries like Iceland, capital control had a negative impact on businesses and investment and on foreign workers who were obliged to leave the country during the capital control period. We can conclude that planning for a healthy and sustainable economy may be the ultimate way to avoid capital control. Article References: New York Time, Financial Times, Investopedia, Wikipedia, Wall Street Journal, BBC, Euro News, the Economist, Reuters CAPITAL CONTROL IN SPAIN AND ITALY Banks in Spain and Italy were suffer- ing a flight of funds to safer Eurozone countries during the financial crisis. However, banks in Italy had a clean bill of health from the IMF. Spain's banks were in difficulties. Spain and Italy did not resort to bailout. If they resorted to bailout then the European Union would have requested Cyprus-style capital control includ- ing upfront payment from bank de- positors.