Cyprus MPs pass banking reforms

[muriel_volestrangler]

Source: BBC

MPs in Cyprus have voted to restructure the island's banks - one of several measures to ease the crisis, which has hit confidence in the eurozone.

They have also approved a "national solidarity fund" and capital controls to prevent a bank run.

Cyprus needs to raise 5.8bn euros (£4.9bn; $7.5bn) to qualify for a 10bn-euro bailout.

MPs did not vote on a key measure - a levy on large bank deposits. They rejected similar moves on Tuesday.

Read more: http://www.bbc.co.uk/news/world-europe-21907022

[dipsydoodle]

1. The only problem of course

is that the Troika had already made it clear they wouldn't accept a "national solidarity fund" as part of the package that Cyprus need to come up with itself.

I'm beginning to wonder if their government is deaf or just plain stupid.

Maybe the Troika should've used big writing.

They shouldn't have too much problem complying with another of the requirements of the bailout :

Does size matter? Cypriot bank sector problem went overlooked.

One of the conditions for the bailout, however, if that Cyprus will more than halve the size of its banking sector by 2018 to match the EU average of around 3.5 times GDP.

http://uk.reuters.com/article/2013/03/21/uk-eurozone-cyprus-banking-size-idUKBRE92K0Y520130321

If as is rumoured , no figure was mentioned tonight , they're looking at c.15% tax on deposits over €100k and current Russian deposits are somewhere between €30 and €70 billion , depending on who you believe, then soon as capital controls are lifted the rest will be pulled out in the blink of an eye. Sort that out !

[Berlin Expat]

2. I noticed that

as well about the "National Solidarity Fund"....my thought was, "Hello? Cypriot parliament? You do know the troika has nixed that idea, don't you?"

I really don't know if it's a matter of being stupid or deaf; they're panicking, and of course when people panic, they don't always think clearly.

In my speculation, I believe that the reason they rejected the "haircut" option was a desire to preserve Cyprus as an off-shore tax haven combined with a belief that Russia would be some kind of deus ex machina and ride to the rescue.

The "Russia as savior" idea - I think that was their Plan B. And when it didn't pan out, they really had no other fall-back position.

Now they're screwed six ways from Sunday. I can't help but wonder if, once they finally vote on something agreeable to the troika, they're planning on resigning en masse and fleeing to safer pastures. Or, if the troika doesn't accept what they vote out, if they'll all take a group trip to Brussels and request asylum, because obviously if they can't come up with something before Monday rolls around, the shit's gonna hit the fan in a way I'd daresay most of us have never seen before. Of course, I'm being somewhat sarcastic; but the truth is, the Cypriots are damned near out of options.

They're teetering on the edge of the abyss.

[Yo_Mama]

3. But the sector is close to 15% of their economy

If they agree to that, then their fate is more like Spain than anything else.

Their GDP will massively shrink, which will magnify their debt-to-GDP ratio quite quickly.

There is no way out of this for them. They seem to be hoping to preserve as much local autonomy as possible.

The troika's plan doesn't make any sense either!

[dipsydoodle]

4. Not 15% : its 45% of their economy.

The banking sector accounts for 45 percent of the island's 17.5 billion euro gross domestic product, according to Skandalis.

http://www.channelnewsasia.com/stories/afp_world_business/view/1261817/1/.html

Coincidentally - early sixties most of my friends were Cypriots living here in north London. I went out for a drink with one them a few months ago and he wasn't at all impressed with what they'd become and even less so with Greece.

[Yo_Mama]

6. Yes, with derivatives.

A base estimate is 14-15%.

That's why I say that their fate will be close to Spain's - the relative weight of banking in the current Cyrpiot economy is very close to that of the housing sector in Spain before collapse, and the balance is made up for by the RE boom as a result of the recent global financial turmoil.

http://www.imf.org/external/pubs/ft/scr/2011/cr11332.pdf#page=52&zoom=page-width,0,371

The above link is an IMF paper from November, 2011. It's worth reading it to understand how quickly the economy developed the imbalance as a result of 2008 and 2009. Tourism collapsed and financial services took over. In about half a decade, Cyprus' heavy exposure to the UK economy shifted to a similar exposure to Russia. Then the Russians started to buy in.

If you will look at page 46 (both graphics) in the above document (the external page number is 47) you will see just how quickly it happened. The historical interlinkage with Greece meant that the Greek shipping countries shifted a lot of their monetary transactions out of Greece and to Cyprus when Greece busted. Because of Russia's landlock problem, there seems to have always been a lot of Russian money in Greece. That too moved over. Then the Russians realized that tax policy was excellent, and off to the races.

The final blow occurred when the Greek writedown on private investors was forced. The problem with that writedown was that the European lenders, including the ECB, protected themselves against all losses. This forced a much larger writeoff on all private sector holders of the debt than was structurally indicated.

Up until that point, Cypriot banks were remarkably safe. In one fell stroke, some of the larger ones became capital deficient. At the time the deal was struck, the ECB and Europe knew that they were wiping out Cyprus. There was a LOT - not a little - discussion of it at the time, and at that point liquidity was provided.

[dipsydoodle]

7. Good information that.

Thanks.

[dipsydoodle]

5. Cyprus says 'significant progress' in debt crisis talks

Last edited Sat Mar 23, 2013, 09:47 AM - Edit history (1)

Cypriot Finance Minister Michael Sarris says there has been "significant progress" in talks with the EU and IMF aimed at securing a bailout.

Mr Sarris was also quoted by Reuters as saying Cyprus was considering a 25% levy on deposits of more than 100,000 euros (£85,000) in its biggest bank.

http://www.bbc.co.uk/news/world-europe-21909673

As far as I'm aware this must refer to the Bank of Cyprus : not the Laiki Popular.

This is good for local on the spot links : http://www.cyprus-mail.com/

[dipsydoodle]

8. Breaking now : Reuters.

Last edited Sat Mar 23, 2013, 08:59 PM - Edit history (2)

The Troika and Cyrpus have agreed to taxes of 20% on all accounts over €100,000 in the Bank of Cyprus and 4% on all accounts over €100,000 in ALL other Cyprus banks.

Confirmed - link here : http://uk.reuters.com/article/2013/03/24/uk-eurozone-cyprus-idUKBRE92F07R20130324