Cyprus Bank Crisis: Money is Frozen, Shockwaves Felt Throughout the World

Things are unraveling quickly in Cyprus, a small island nation off the coast of Turkey.

On Friday, European partners and the International Monetary Fund agreed to an aid package for the flailing country, but with unprecedented terms. The cypriot president, Nicos Anastasiades, described the deal as a choice between the "catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis."

By Monday, Cypriot legislators were discussing a 10% tax on all deposits (or those over $130,000) as a way to help pay for the bailout. Residents started a bank run which forced the government to effectively shut down the banks, to avoid people from taking too much money out too quickly. The situation is sending shock waves throughout the world. 

The biggest rumblings have been coming out of Russia. Vladimir Putin described the proposal to tax deposits as "dangerous," no doubt in part because many Russian oligarchs, including Putin, reportedly have money in those banks. Cypriot banks hold eight times more money in deposits than the national GDP of the country. It's a money shelter for many foreign investors that are now, possibly, going to get hit hard. The situation also sparked worries throughout the rest of the Europe.

Banks in Spain and Italy, for instance, have been hurting through the economic downturn and the latest news out of Cyprus has sparked fears that the panic could spread and cause bank runs in other EU countries.

As the crisis unfolds, we'll be bringing you live coverage and updates.