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How Cypriot banks will work on Tuesday

23 March 2013 / 18:03:42  GRReporter
2991 reads

Cyprus is going several years back, after Parliament voted laws that will allow restrictions on the movement of capital. The new system is reminiscent of the one of decades ago. According to the new laws, the Governor of the Central Bank of Cyprus will acquire superpower over the movement of capital in the Cypriot banking system. The aim is to avoid the expected large leaks, which will start with the opening of Cypriot banks after the imposition of cuts in deposits. According to certain information, a daily limit of withdrawals, amounting to 10,000 euro, will surely be imposed and, if necessary, the central banker will be able to turn deposits into term deposits, in order to prevent leakage of money. In parallel, he or she will be able to extend the term of term deposits, so that depositors cannot withdraw their money.

All measures

The Central Bank of Cyprus can take the following measures with one simple decision:

  1. Restrictions on cash withdrawals
  2. Prohibition of early closures of term deposits
  3. Mandatory renegotiation of the date of term deposits’ expiration
  4. Prohibition or restrictions on openings of new accounts
  5. Turning of current deposits into term deposits
  6. Prohibition or restrictions on transactions that are not in cash
  7. Restrictions on using debit and credit cards
  8. Prohibition or restrictions on cashing cheques
  9. Restrictions on interbank transactions or internal bank transactions
  10. Restrictions on private transactions with credit institutions
  11. Restrictions on capital and payments movement
  12. Any other restrictive measures that the Minister or central bank Governor consider necessary for the public order or security

The next act of the Cyprus drama will be performed in Brussels. On Sunday, Eurogroup is expected to approve a decision, which will include cuts in deposits in all cases. The goal is to collect a total of 5.8 billion euro through restructuring of the banking system. On Friday, Parliament voted the restructuring of Laiki Bank - a decision that is expected to provide 2.6 billion dollars. This will be achieved through the transfer of all unsecured deposits, i.e. amounts exceeding 100,000 euro, in a "bad" bank that is currently being created and will be liquidated.

These depositors will be compensated and it is considered that, at a later stage, they will limit their losses by 50%, since now all amounts exceeding 100,000 euro are frozen. On the other hand, deposits of depositors in Laiki Bank will not be touched. These are up to 100,000 and will be transferred into the new "healthy" bank that is being created.

The three scenarios

After providing Laiki Bank with 2.6 billion euro, the Cypriot government, in cooperation with the Troika, should collect the remaining 3.2 billion euro, so that the total amount will reach 5.8 billion euro. This capital, according to Cypriot media, may come from:

1. Imposition of a 25% tax on unsecured deposits in the Bank of Cyprus, i.e. cutting of bank deposits exceeding 100,000 euro.

2. Imposition of a tax, which is less than 25%, on smaller deposits in the bank, and fewer cuts in unguaranteed deposits in other banks.

3. Imposition of a lower common tax on all unsecured deposits that are in Cypriot banks.

Tags: Cyprus restructuring of the banking system Bank of Cyprus Laiki Bank cutting deposits
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