Effects of Cyprus Bank Crisis: Capital Will Flee Island Nation and Make Room For New Players

As Sal Bommarito has pointed out in the comments to the right, the confidence in Cyprus' banking system will be gone. Without the needed liquidity, lending and borrowing will dry up, including for the state itself, making any capital investment and social costs nearly untenable.

Interest rates in Cyprus will likely also go up from the lack of confidence, which would deepen an already bleak outlook.

There will almost certainly will also be capital flight from Cyprus, as investors look for safer destinations for their money.

However, the withdrawal of capital and investors from Cyprus would plunge the price both of obligations and assets - the room could mean prime time for Chinese, Qatari or other wondering billions in wealth and investment funds to find a home.