...has been crossed with respect to deposit holders in the Western World. But beyond the philosophical and legal ramifications stemming from the seizure of Cypriot bank deposits (and the inevitable comparisons to 3rd world expropriation), there are some more practical issues that I am concerned with.
First and foremost is the negotiation and storage of collateral for global markets. Given that this measure is akin to a massive exchange control program, and even assuming that the level of global interconnectivity remains constant*** it would appear that banks will have myriad financing problems because collateral will less likely be posted to (now) untrustworthy bank than with other custodial institutions. Again, these are Rubicon type issues with respect to the irrevocability of global banking trust. Think about what a "best practice" is for large trading groups and the collateral they must post in order to conduct business. Now think about how banks would alter their own financing activities if they lose this business.
Secondly, Bond volatility and the associated yield curves for all major Sovereign issuers are not currently pricing in any forward-looking significance to this event. All one needs to do is look in some of the international covenants and their vulnerability to acts of a Sovereign regime that do not trigger official inflation figures.
Thirdly (and speaking of inflation) if Sovereigns can seize bank deposits in a "crisis", true command and control of an economy is an order of magnitude closer. It all leads to Government out-scaling its "limitations", and historically speaking, when large groups of nations achieve that kind of power, "bad things happen".
***I have said before that interconnectivity and global cooperation itself is an illusion. It is not some linear progressive inevitability...rather a historical curiosity caused by massive technological innovation. Things are going to become more complicated once we all get used to how this technology can be manipulated to create winners and losers. The inimical conflict between Nation States has certainly not been conquered by global cooperation.