Put this in perspective. The government of Cyprus borrowed money it had neither means nor intent to repay. Borrowing, for a government, means selling bonds. The Cyprus banks borrowed money, which for a bank means taking in deposits (among other sources of funds). They used that money they borrowed from their depositors to buy Cyprus government bonds.
Now, those bonds are heading to default because the government of Cyprus cannot pay the interest without selling more bonds, and the market does not want to bid on their new bonds. So the government is rapidly heading towards default. They are seeking a bailout from the IMF, ECB, and EC (“the Troika”). The Troika said sure, but bank depositors must take a haircut too.
In this context, what is the meaning of a bank depositt, or the government’s guarantee of bank deposits which are defaulting because the bank has bad assets which are the bonds of that very same government?