S&P says Cypriot deposit grab may set Euro zone precedent

The ratings firm also raised concerns that the Euro zone's plans for a banking union may fall short of requirements

The grab on bank deposits that accompanied Cyprus's bailout could be repeated elsewhere in the Euro zone, and the bloc's banking union may not be strong enough when it is introduced, Standard and Poor's said on Wednesday.

"We believe that the events in Cyprus highlight the increased reluctance of financially stronger Euro zone countries to make their taxpayers' funds available to recapitalise banks outside their home jurisdictions," the ratings agency said in a report.

"For this reason, although the key features of the Cypriot banking system are not shared by other euro zone countries, we consider that the bail-in may indeed create a precedent."

The ratings firm also raised concerns that the Euro zone's plans for a banking union - designed to break the link between costly bank bailouts and unmanageable sovereign debt levels - may fall short of requirements.

The union is due to come into force by the middle of next year but there has been substantial backsliding on the original blueprint, with Germany in particular resistant to committing money from its taxpayers to supporting banks outside its borders.

S&P credit analyst Richard Barnes said the increasingly "minimalist" looking plans would "do little to make the Euro zone a more cohesive monetary union or address banks' direct and indirect dependence on the creditworthiness of their national governments".

"This to us raises doubts over the strength of the banking union that will ultimately be introduced."