UPDATE 1-U.S. backs Cyprus protection for insured depositors
WASHINGTON, March 25 (Reuters) - The U.S. Treasury Department said Cyprus' last-ditch agreement with international lenders could help avert an economic meltdown, adding that it protects insured depositors and shutters troubled banks.
Cyprus will receive a 10 billion euro ($13 billion) rescue package to prop up its troubled banking system, in return for closing down its second-largest bank and inflicting heavy losses on big depositors.
"It is critical to lay the foundation for a return to financial stability and growth in Cyprus," the Treasury said in a statement on Monday, adding that financial stability in the euro zone is important to the United States. The European Union is the United States' largest trading partner.
"The agreement in Cyprus fully protects insured depositors, which is important, while resolving and recapitalizing troubled banks," Treasury added.
"We will continue monitoring developments closely as details are finalized and the agreement is implemented."
Cyprus's banking sector, with assets eight times the size of the economy, has been crippled by exposure to Greece, where private bondholders suffered a 75 percent "haircut" last year.
Without a deal by the end of Monday, the European Central Bank said it would have cut off emergency funds to the banks, spelling certain collapse and potentially pushing the country out of the euro.
As such, the ECB on Monday decided to give Cypriot banks access to emergency central bank funding after the country struck its bailout deal.
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