Nicos Anastasiades, President of Cyprus, has agreed to a bail out deal for the country, which will entail the closing the second largest bank in the country, Laiki or the Cyprus Popular Bank, to make way for the release of EUR10 billion-aid and eliminate the risk of bankruptcy.
Under the new deal, the Cypriot authorities have agreed to resolve Laiki immediately, with full contribution of equity shareholders, bond holders and uninsured depositors. Also, the bank will be split into a good bank and a bad bank.
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While the good bank will be folded into the Bank of Cyprus, the bad bank will be run down over time. Along with Laiki’s viable assets, Bank of Cyprus will also get EUR9 billion in Emergency Liquidity Assistance (ELA).
The agreement was evolved in an attempt to avert a collapse of the banking sector, just hours before a deadline set by the European Central Bank (ECB). The central bank had threatened to withdraw ELA to Cypriot Bank, if the country does not come up with a new bailout plan by then.
Cypriot authorities presented the policy plans in Brussels and was endorsed by all euro area member states as well as the troika, consisting of the International Monetary Fund (IMF), the European Union and the ECB.
Bank of Cyprus will be recapitalised through a deposit or 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.
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By GlobalDataThe plan envisages protection of all insured depositors and of deposits up to EUR100,000 in all banks. The bailout money of EUR10 billion will, reportedly, not be used to recapitalise Laiki and Bank of Cyprus.
