Brussels, 27/03/2013 (Agence Europe) - On Wednesday 27 March 2013, the Cypriot government introduced measures to restrict the movement of capital so that Cypriot banks can reopen on Thursday without a run on the banks.
It is difficult to say at this stage which banks exactly are going to open on Thursday. Greek newspaper Kathimerini points out that the capital restrictions have yet to be approved. Starting on Thursday and for one week, the restrictions will ban the cashing of cheques and restrict the cash that individuals can send out of the country to a total of €3,000. Payments abroad will be limited to a total of €5,000 a month per person per bank. Companies will be allowed to pay their foreign suppliers sums of more than €500 only if they provide justification. Tourists and travellers will not be allowed to take more than €3,000 with them in cash when they leave the country.
Looking back to what happened in Iceland, many observers say the restrictions are likely to be in place for weeks rather than days.
The subsidiaries in Russia and the UK of the two Cypriot banks being restructured - Laiki and Bank of Cyprus - were open for business as normal during the turbulent time of the Cypriot bailout talks, which had made it possible, a source explained, for large sums of money to be withdrawn. A European source says that the cash withdrawn in Russia and the UK might have a considerable impact, the extent of which is not yet known, on the actual size of the raid on savings and shares/bond holdings in Laiki and Bank of Cyprus (BoC) of more than €100,000. The €10 billion aid offered by the eurozone will not be used to bail out BoC, but will, instead, go to meet the government's spending requirements, which are reported to be higher than initially forecast.
BoC will therefore have to be bailed out from a raid of perhaps 40% on savings of above €100,000, which will be turned into shares in the bank in order to achieve the new 9% Core Tier 1 capital requirement set by the European Banking Authority. So, in return for their cash, savers will be given shares in the restructured Bank of Cyprus.
In London, branches of Cypriot banks said that savings in London would not be hit, but the European Central Bank says that Laiki is going to be wound down, which includes the branches in London. “Deposits in Laiki are deposits in Laiki, no matter what branch”, said an ECB official.
Banks in Cyprus are reported to have seen massive withdrawals of cash, despite the fact that they have been closed since 16 March. Reuters reported on Tuesday that the Central Bank of Cyprus had asked for more banknotes from the ECB than had, in fact, been withdrawn, as far as the ECB knew. The Central Bank of Cyprus has brushed aside criticism in this connection, arguing that it was not possible to stop all transactions, despite the freezing of bank accounts, explains German magazine Der Spiegel, adding that most of the cash had been withdrawn abroad, where Cyprus has no jurisdiction.
Cypriot parliamentarians are calling for an investigation to find out whether bank staff at the Central Bank or government officials had been told in advance about the capital restrictions and had therefore been able to withdrawn their own savings.
Cyprus Mail reports that various Russian companies and banks with huge investments in Cypriot banks may instigate legal proceedings over loss of money in the Cypriot bailout. (EL/transl.fl)