Banks lend out most of the money deposited with them. This makes them an inherently risky proposition, and if you think government regulation and deposit insurance solve that problem, think again. From Simon Black at sovereignman.com:
March 15, 2013 was a pretty normal day in Cyprus. It was a Friday, and most people were looking forward to a relaxing weekend.
The next morning the entire nation woke up in horror. Their politicians had been up all night, negotiating with international lenders to provide an emergency loan to the country, and its banks.
It turned out that the banks in Cyprus were all insolvent; just like banks in the United States during the 2008 sub-prime crisis, banks in Cyprus had been making idiotic decisions with their customers’ hard-earned savings.
And by 2013, the banks’ losses were too great to ignore.
Unfortunately for depositors, the government of Cyprus was also broke, and they were unable to bail out the banks.
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