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January 16, 2022

Cyprus to bring in weekly cash curbs

Cyprus banks re-opening, delayed until Thursday. Bank of Cyprus chairman resigns. Thousands of students protested in the capital as banks stayed shut to stop a run on deposits.

Cyprus finance ministers are planning to impose a weekly limit on cash withdrawals, the BBC has learned. The country’s draft capital controls include export limits on euros and a ban on cashing cheques. In addition, fixed-term deposits will have to be held until maturity. Cyprus’s finance minister earlier confirmed that depositors with more than 100,000 euros could see 40 pc of their funds converted into bank shares. Later, Andrea Artemis, the 59-year-old chairman of the Management Board of the Bank of Cyprus, has submitted his resignation, euronews.com informs. Local media reported that Artemis expressed his disagreement on the plans to recapitalize the bank in a letter sent to the Ministry of Finance. On Monday, Dinos Christofides was appointed as Special Administrator for the implementation of reorganisation measures the Bank of Cyprus and Andri Antoniades as a Special Agent for the implementation of reorganisation measures in the People’s Bank by the country’s central bank.  Also, Piraeus Bank became Greece’s second largest lender on Tuesday after confirming that it had completed the acquisition of the units of three Cypriot banks: Bank of Cyprus, Cyprus Popular Bank (Laiki) and Hellenic Bank for just over half a billion euros, ekathimerini.com informs.Meanwhile, the banks were ordered to remain closed until Thursday, and even then will impose capital controls to prevent depositors from stripping out all their funds. According to Reuters, quoted by CNN, up to 3,000 high school students protested outside parliament, the first real expression of popular anger after Cyprus agreed the 10 billion euro bailout with the European Union. Though the deal prevented a meltdown in its banking system, it could also saddle the country with years of austerity. After returning from last-ditch negotiations in Brussels, President Nicos Anastasiades said late on Monday that the rescue plan agreed with international lenders was “painful” but essential.

He agreed to close down the second-largest bank, Cyprus Popular, and inflict heavy losses on big depositors, many of them Russian, after Cyprus’s outsize financial sector ran into trouble when its investments in neighboring Greece went sour. European leaders said a chaotic national bankruptcy that might have forced Cyprus from the euro and upset Europe’s economy was averted. Investors in other European banks are alarmed by the precedent of making depositors bear losses. “The agreement we reached is difficult but, under the circumstances, the best that we could achieve,” Anastasiades said in a televised address to the nation. Many Cypriots say they do not feel reassured by the bailout deal, however, and are expected to besiege banks as soon as they reopen after a shutdown that began over a week ago.

Europe officials seek to contain Cyprus damage

A top European Central Bank official insisted on Tuesday that the case of Cyprus, in which large depositors and senior debt holders were forced to take losses, would not serve as a model for any future bailouts in the euro zone. The Cyprus bailout “was the solution to a problem that had become desperate,” Benoit Coeure, a Frenchman and a member of the ECB’s governing council, told Europe 1 radio. “Cyprus was in bankruptcy, that is something that doesn’t exist anywhere else in the euro zone.” “The situation was so unique that it needed a unique solution,” he added. “But I don’t see any reason to employ the same methods elsewhere.” Coeure criticized the head of the Eurogroup of euro zone finance chief, Jeroen Dijsselbloem, for suggesting on Monday that the Cyprus model, in which losses were forced on large depositors, might be used as a “template” any for future bailouts.  “The experience of Cyprus is not a model for the rest of the euro zone, because the situation there attained a magnitude that is not comparable to any other country.” Coeure said. Dijsselbloem later retracted his words, saying in a statement that Cyprus was “a specific case with exceptional challenges,” and that bailouts were “tailor-made to the situation of the country concerned and no models or templates are used.” Bank analyst Dick Bove says for cnbc.com the Cyprus bailout is positive for U.S. banks, because fears that European officials may target depositors in other future bailouts will lead to an outflow of money from Europe and into America. Bove, who is vice president of equity research at Rafferty Capital, said taking money away from depositors is a bad idea because they, along with bond holders, are the people that supply lenders with money that is later used to make loans and help boost the economy.

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