CYPRUS clinched a last-ditch deal with international lenders on Monday for a 10 billion euro ($13 billion) bailout that will shut down its second largest bank and inflict heavy losses on uninsured depositors.
Following is the detail of the deal in a statement from euro zone finance ministers.
- Laiki will be resolved immediately – with full contribution of equity shareholders, bond holders and uninsured depositors – based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework.
- Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time.
- The good bank will be folded into Bank of Cyprus (BoC), using the Bank Resolution Framework, after having heard the Boards of Directors of BoC and Laiki. It will take 9 billion Euros of ELA with it. Only uninsured deposits in BoC will remain frozen until recapitalization has been effected, and may subsequently be subject to appropriate conditions.
- The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules.
- BoC will be recapitalized through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders.
- The conversion will be such that a capital ratio of 9% is secured by the end of the program.
- All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.
- The program money (up to 10 billion Euros) will not be used to recapitalize Laiki and Bank of Cyprus.
After the eurozone’s finance ministers’ approval, several national parliaments, such as Germany’s, must also approve the bailout deal, which might take another few weeks. EU officials said they expect the whole programme to be approved by mid-April.
“The debt clean-out will help growth as it always has. But cold comfort for the people sacrificed by a toxic blend of European idealism and grotesque local incompetence.”
“We’ve put an end to the uncertainty that has affected Cyprus and the euro area over the past week,” said Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone’s finance ministers.
“We believe that this will form a lasting, durable and fully financed solution,” said Christine Lagarde, chief of the IMF.
Cyprus’ finance minister Michalis Sarris said: “It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone. A long period of uncertainty and insecurity surrounding the Cyprus economy has ended.”
Pissarides Sees ‘Disastrous’ Implications in Cyprus
March 25 (Bloomberg) – Nobel Laureate, Christopher Pissarides, the head of Cyprus’ economic policy council, talks about the island nation’s bailout package and the outlook for its future membership of the euro zone. He speaks from Nicosia with Guy Johnson and Francine Lacqua on Bloomberg Television’s “The Pulse” (Source: Bloomberg)
Press conference given by the Cyprus Finance Minister
Finance minister Michalis Sarris held a televised press briefing following the bailout deal reached in Brussels. The first 12 minutes of the briefing (below) are in English, the remainder in Greek.