In exchange for the bailout, creditors would impose a one-time tax of 6.75pc on all bank deposits under €100,000 and 9.9pc over that amount.
The levy is “a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future,” wrote Joachim Fels, the chief economist at Morgan Stanley in London, in a note to clients.
Mark Bayley, a Sydney-based credit strategist with advisory company Aquasia, told Bloomberg, also said it set a "dangerous precedent" and was a "bail-in of depositors".
“More contagion fears will spread through investors and it will encourage depositors in the European periphery to move their funds to a safer place, either under the pillow or to Germany,” he said.
Barclays said in a report that the deposit levy was an “ominous” sign of how bail-outs were being handled.
Lars Seier Christensen, the chief executive of Denmark’s Saxo Bank, wrote: “If you can do this once, you can do it again.”
Mohamed El-Erian, the chief executive of Pimco, the world’s largest bond investor, said: “In Europe, it [the Cyprus bail-out] could well undermine the recent tranquil behaviour of depositors and creditors in other vulnerable European economies – in particular Greece, Italy, Portugal and Spain.
“Despite assurances from European officials that Cyprus is 'exceptional’ and the measures are 'unique’, this weekend’s actions have increased the risk premium.”
The bailout follows those for Greece, Portugal, Ireland and Spanish banks, but it is the first one that dips into people's savings to finance a bailout.
"Despite reassurances from Brussels that Cyprus is a special case and that indiscriminate levies won't be a common policy tool, depositors across Europe are doubting their sincerity and are fearing that a new precedent has been set for other debt-laden euro zone countries," Jonathan Sudaria, dealer at Capital Spreads, said in a note.
In a televised speech on Sunday, Cypriot President Nicos Anastasiades urged lawmakers to approve the tax, saying it is essential to save the country from bankruptcy.
He also proposed that small depositors be exempt from paying the tax. Lawmakers are due to vote on the plan later Monday. If Parliament rejects the tax, that would put the entire rescue package in jeopardy.
More than 50,000 Britons are thought to have bank accounts in Cyprus, including about 3,000 members of the Armed Forces serving in the country. George Osborne, the Chancellor, has offered to compensate them if they are hit. Cypriot banks operating in this country are not affected.
US stocks fell on Friday, ending a 10-day winning streak for the Dow Jones industrial average, its longest in nearly 17 years. The Dow dropped 0.2pc to 14,514.11. The Standard & Poor's 500 index, which is close to its all-time high, fell 0.2pc, to 1,560.70. The Nasdaq composite index dropped 0.3 percent to 3,249.07.
However, David Cumming, Standard Life's UK head of equities, told the BBC Radio 4’s Today programme, that he did not expect there to be contagion to other eurozone countries as a result of the Cyprus deal.
“I don’t see the impact from this [in markets] lasting for more than a few days,” he added.
The levy is “a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future,” wrote Joachim Fels, the chief economist at Morgan Stanley in London, in a note to clients.
Mark Bayley, a Sydney-based credit strategist with advisory company Aquasia, told Bloomberg, also said it set a "dangerous precedent" and was a "bail-in of depositors".
“More contagion fears will spread through investors and it will encourage depositors in the European periphery to move their funds to a safer place, either under the pillow or to Germany,” he said.
Barclays said in a report that the deposit levy was an “ominous” sign of how bail-outs were being handled.
Lars Seier Christensen, the chief executive of Denmark’s Saxo Bank, wrote: “If you can do this once, you can do it again.”
Mohamed El-Erian, the chief executive of Pimco, the world’s largest bond investor, said: “In Europe, it [the Cyprus bail-out] could well undermine the recent tranquil behaviour of depositors and creditors in other vulnerable European economies – in particular Greece, Italy, Portugal and Spain.
“Despite assurances from European officials that Cyprus is 'exceptional’ and the measures are 'unique’, this weekend’s actions have increased the risk premium.”
The bailout follows those for Greece, Portugal, Ireland and Spanish banks, but it is the first one that dips into people's savings to finance a bailout.
"Despite reassurances from Brussels that Cyprus is a special case and that indiscriminate levies won't be a common policy tool, depositors across Europe are doubting their sincerity and are fearing that a new precedent has been set for other debt-laden euro zone countries," Jonathan Sudaria, dealer at Capital Spreads, said in a note.
In a televised speech on Sunday, Cypriot President Nicos Anastasiades urged lawmakers to approve the tax, saying it is essential to save the country from bankruptcy.
He also proposed that small depositors be exempt from paying the tax. Lawmakers are due to vote on the plan later Monday. If Parliament rejects the tax, that would put the entire rescue package in jeopardy.
More than 50,000 Britons are thought to have bank accounts in Cyprus, including about 3,000 members of the Armed Forces serving in the country. George Osborne, the Chancellor, has offered to compensate them if they are hit. Cypriot banks operating in this country are not affected.
US stocks fell on Friday, ending a 10-day winning streak for the Dow Jones industrial average, its longest in nearly 17 years. The Dow dropped 0.2pc to 14,514.11. The Standard & Poor's 500 index, which is close to its all-time high, fell 0.2pc, to 1,560.70. The Nasdaq composite index dropped 0.3 percent to 3,249.07.
However, David Cumming, Standard Life's UK head of equities, told the BBC Radio 4’s Today programme, that he did not expect there to be contagion to other eurozone countries as a result of the Cyprus deal.
“I don’t see the impact from this [in markets] lasting for more than a few days,” he added.