Cyprus readies capital controls to avert bank run

NICOSIA Tue Mar 26, 2013 6:50pm EDT

1 of 15. Students take part in an anti-Troika protest outside the Presidencial palace in Nicosia March 26, 2013.

Credit: Reuters/Yannis Behrakis

NICOSIA (Reuters) - Cyprus is expected to complete capital control measures on Wednesday to prevent a run on the banks by depositors anxious about their savings after the country agreed a painful rescue package with international lenders.

Cypriots have taken to the streets of Nicosia in their thousands to protest at a bailout deal that they fear will push their country into an economic slump and cost many their jobs. European leaders said the deal averted a chaotic national bankruptcy that might have forced Cyprus out of the euro.

With banks due to reopen on Thursday, Finance Minister Michael Sarris said he expected the control measures to be ready by noon (5 a.m. EST) on Wednesday: "I think they will be within the realms of reason," he said, without going into details.

"Banks will open on Thursday ... We will look at the best way to limit the possibility of large sums of money leaving, and not imposing punitive conditions on the economy, businesses and individuals," Sarris said in a Cyprus television interview.

The central bank governor said earlier that "loose" controls would apply temporarily to all banks. Earlier, the finance minister said they could be in place for weeks. Banks have been shut since final bailout talks got under way in mid-March.

Up to 3,000 high school students protested at parliament, the first major expression of popular anger after Cyprus agreed the 10-billion euro ($13-billion) rescue with the European Union, International Monetary Fund and European Central Bank.

"They've just got rid of all our dreams, everything we've worked for, everything we've achieved up until now, what our parents have achieved," said one student, named Thomas.

Outside the central bank, about 200 employees of the country's biggest commercial lender, the Bank of Cyprus, demanded the resignation of the central bank governor, Panicos Demetriades, chanting "Hands off Cyprus" and "Disgrace".

Dimos Dimosthenous, who has worked at the Bank of Cyprus for over 30 years, said: "The bank is being driven to closure.

"That will be the end. Our jobs, our rights, our welfare funds will be lost and Cyprus will be destroyed."


Under the terms of the bailout, the second largest lender, Cyprus Popular Bank, is to be shut down and its accounts of under 100,000 euros combined with those of the Bank of Cyprus. Accounts of more than 100,000 euros at both banks will be frozen, with depositors, many of them rich foreigners, likely to lose much of their investments.

By protecting state-guaranteed deposits of up to 100,000 euros, the bailout reversed a previous deal struck on March 16 that would have imposed a levy on small depositors as well as big ones, which had infuriated Cypriots and was vetoed by parliament. Government officials have estimated big depositors could now face loses of around 40 percent.

Many Cypriots say they do not feel reassured by the new deal, however, and are expected to besiege banks as soon as they reopen after a shutdown that began over a week ago.

The long closure of the banks has hurt business, according to Andreas Hadjiadamou, president of the Cyprus Supermarkets Association, who said consumer confidence had "hit the floor".

Maria Benaki, who runs a family silverware business on Nicosia's biggest shopping street, said she had not had a customer in days.

"The situation is dire," she said. "What will happen at the end of the month when I need to pay my bills?"

(Writing by Giles Elgood; Editing by Alastair Macdonald)

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Comments (28)
AZWarrior wrote:
Meanwhile, back in the United States, no “too big to fail” bank has been broken up into more rational sized institutions.

Mar 25, 2013 11:23pm EDT  --  Report as abuse
Missourimule wrote:
The allure of breaking up the “too big to fail” bank should be quickly brushed aside by the fact that the Cypriot government is openly stealing “under or around” 30% (I’d heard 40%) of the deposits of anyone with over 100,00 euros ($130,000) in the bank. That’s nothing – that’s a pittance. That’s not ‘taking from the rich’. In American terms, that’s digging down into the retirement savings of huge numbers of depositors, with the very real possibility that now, they can do it again, any time they want. You think that won’t have a chilling effect on the Cyprus economy for decades to come?

Mar 26, 2013 5:52am EDT  --  Report as abuse
Orrion wrote:
Not just a chilling effect on Cyprus, but on all of the struggling economies in the Euro-zone. Look for massive withdraws of currency from Italy, Spain, and Ireland.

Mar 26, 2013 6:20am EDT  --  Report as abuse
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