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All Cyprus banks will remain closed until Thursday, March 28, the central bank has announced.
Temporary measures will be placed on transactions when they reopen despite an EU/IMF bailout deal.
Earlier, the Cypriot authorities said all but the biggest two, Bank of Cyprus and Laiki Bank, would open on Tuesday, March 26.
The central bank now says all will remain closed to ensure the whole banking system functions “smoothly”.
The bailout deal will see larger depositors in the two biggest banks, Bank of Cyprus and Laiki, lose money.
All Cyprus banks will remain closed until Thursday, March 28, the central bank has announced
President Nicos Anastasiades said “very temporary restrictions” would be put on capital flows, but gave no details.
Controls to prevent money leaving the country are already in place.
Certain limits on the size of cash withdrawals are expected to continue.
Banks have not been open since March 15. Their reopening had been expected after Cyprus agreed a deal with the IMF and the EU that releases 10 billion euros in support.
It was conditional on Cyprus itself raising 5.8 billion euros, most of which looks likely to come from depositors with more than 100,000 euros in Bank of Cyprus and Laiki or Popular Bank.
The banks remained closed after the country’s first money-raising solution, which would have hit smaller deposit holders as well as larger holdings, was rejected by parliament.
The new deal for Cyprus, unlike previous agreements, does not require parliamentary approval. It will also include austerity measures and tax increases.
Laiki will be shut down, and deposits under 100,000 euros, which are guaranteed by the state under EU law, will move into the Bank of Cyprus to create a “good bank”.
Deposits above that insured amount will be frozen and used to pay Laiki’s debts and recapitalize the Bank of Cyprus, with depositor losses eventually converted into shares.
Major depositors, many of whom are wealthy Russians, will not be able to access accounts exceeding the 100,000-euro limit until the restructuring of the banks is complete.
A government spokesman said the losses on uninsured depositors would be “under or around 30%”.
Cyprus banks are to reopen on Tuesday, March 26, although the two at the centre of the crisis, Bank of Cyprus and Laiki, will remain shut until Thursday, March 28.
President Nicos Anastasiades has said temporary limits will be placed on financial transactions after a bailout deal imposing a tax on bank deposits.
He said “very temporary restrictions” would be put on capital flows, but gave no details.
Controls to prevent money leaving the country are already in place.
Certain limits on the size of cash withdrawals are expected to continue.
Cyprus banks are to reopen on March 26, although Bank of Cyprus and Laiki will remain shut until March 28
The banks’ reopening came after Cyprus agreed a deal with the IMF and the EU that releases 10 billion euros in support.
It was conditional on Cyprus itself raising billions of euros, which it will do by way of a tax on deposits of more than 100,000 euros.
The banks shut a week ago after the country’s first money-raising solution, which would have hit smaller deposit holders as well as larger holdings, was rejected.
On Monday morning, hopes that the deal would solve the crisis lifted shares.
But later, stock markets were rocked after Jeroen Dijsselbloem, head of the Eurogroup of eurozone finance ministers, suggested that the deal for Cyprus model could form a template in any future bailout.
Jeroen Dijsselbloem, the Dutch finance minister who as head of the Eurogroup played a key role in the Cyprus negotiations, said the deal represented a new template for resolving future eurozone banking problems.
“If there is a risk in a bank our first question should be <<OK, what are you in the bank going to do about that?>>,” he told Reuters and the Financial Times.
Jeroen Dijsselbloem later added a clarification, saying that Cyprus was “a specific case with exceptional challenges”.
He said the pattern for bank rescues should see shareholders take the first hit, then bondholders, who lend money through financial markets, and only then should depositors with large bank balances be tapped.
The Cyprus deal puts the burden for dealing with problem banks on their shareholders and creditors – in this particular case, customers with large bank balances – rather than the government and taxpayers, or bondholders, who lend through financial markets.
European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout.
On Monday morning, hopes the deal would solve the crisis lifted shares.
By 15:30 GMT, all major European markets had fallen into negative territory, joined by US stocks.
Cyprus’ President Nicos Anastasiades, later addressed his country in a television broadcast.
The deal was “painful” but the best that could have been struck under the circumstances, he said.
Nicos Anastasiades said that controls limiting restricting the movement of capital would be temporary and he promised to protect the weak, saying that welfare payments would be met.
Earlier, markets in Europe and the US moved downwards when Jeroen Dijsselbloem, the Dutch Finance Minister who as head of the Eurogroup played a key role in the Cyprus negotiations, said the deal represented a new template for resolving future eurozone banking problems.
“If there is a risk in a bank our first question should be <<OK, what are you in the bank going to do about that?>>,” Jeroen Dijsselbloem told Reuters and the Financial Times.
Jeroen Dijsselbloem later added a clarification saying that Cyprus was “a specific case with exceptional challenges”.
The Cyprus deal puts the burden for dealing with problem banks on their shareholders and creditors – in this particular case, customers with large bank balances – rather than the government and taxpayers – and bondholders, who lend through financial markets.
European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout
Jeroen Dijsselbloem said the pattern for bank rescues should see shareholders take the first hit, then bond holders, who lend money through financial markets, and only then should depositors with large bank balances be tapped.
But his remarks raised fears that other European countries with struggling banks may face the same solution as Cyprus, which agreed to force those with cash on deposit above 100,000 euros, many of whom are Russian, to pay a substantial tax.
Cyprus will receive 10 billion euros ($13 billion) in bailout funds, but has agreed to a major restructuring of its banks.
Small savers will be protected but Cyprus’s second largest bank – Laiki Bank – will be wound up and split into “good” and “bad” banks, with its good assets eventually merged into the Bank of Cyprus, the country’s biggest bank.
The two banks will remain closed until Thursday, while all others will reopen on Tuesday after being closed for more than a week, Cyprus’s central bank says.
The Cypriot government suggested that account holders with deposits of more than 100,000 euros should expect to lose about 30% of their balances.
The UK’s FTSE 100 index ended the day down 0.2%, while Germany’s Dax gave up 0.5%, and France’s Cac lost 1.1%. In New York, the Dow Jones was 0.5% lower.
In Madrid, the market slipped 2.5% while the Milan index was down 2.27%.
The euro was also driven lower, falling to a six-week low against the pound. The euro was down 0.6% to 84.74 pence.
The new deal for Cyprus, unlike previous agreements, does not require the approval of the Cypriot parliament.
The uncertainty over the future of Cyprus in the eurozone was sparked a week ago when its parliament rejected an earlier bailout deal, which also included a controversial bank levy.
Despite the Cypriot economy’s relatively small size, many analysts had been concerned that the crisis would spread to the wider eurozone, had Cyprus been forced to give up the single currency.
There were fears that the country’s possible exit from the euro would trigger a loss of confidence across the single currency bloc, and prompt investors to withdraw from other troubled economies, such as Greece.
However, while Cyprus is now likely to remain in the eurozone, the country still faces significant obstacles as it attempts to recover from the crisis.
The EU-IMF deal involves a massive restructuring of the Cypriot banking system, as well as austerity measures and tax increases.
There has also been significant public anger in Cyprus at the intervention of European authorities, and the credibility of the Cypriot government has been questioned.
The Cypriot political leaders have dropped the unpopular levy on bank deposits in a new bailout plan.
There was outrage over an earlier plan to tax all bank deposits.
Cyprus’ banks, which have been shut all week to prevent mass withdrawals, are to stay closed until next Tuesday, March 26.
Cyprus is required to find 7 billion euros ($9 billion) to get a 10 billion-euro EU-IMF loan. Cypriot officials now propose a state investment fund and special bond issue to raise 5.8 billion euros.
The other 1.2 billion would be raised through privatizations and by increasing capital gains tax and the corporate tax rate.
The European Central Bank (ECB) has warned it may halt emergency funding on Monday if Cyprus fails to come up with a viable rescue plan by then.
Cypriot political leaders have dropped the unpopular levy on bank deposits in a new bailout plan
Cypriots are finding it increasingly difficult to perform everyday financial transactions as cash and credit dries up.
“We didn’t discuss a [deposit] haircut and we are not reverting to it,” Cyprus’ parliament speaker Yiannakis Omirou told reporters, in remarks quoted by Reuters.
Yiannakis Omirou was speaking after an emergency meeting between politicians and President Nicos Anastasiades.
It is not yet clear if the new plan will be ready to be put to a parliamentary vote on Thursday.
The deputy leader of the ruling Democratic Rally party, Averof Neophytou, said party leaders had unanimously agreed to create a “solidarity fund” with state assets, which would be used for an emergency bond issue, Reuters reported.
That plan was confirmed by government spokesman Christos Stylianides.
But one senior government MP, who did not want to be named because he said discussions were not over, said the bank levy would remain in some form. Without it, the MP said, Cyprus could not raise all the money it needed.
The previous proposals had included a levy on deposits between 20,000 and 100,000 euros, which had outraged many Cypriots.
There has been much speculation that the new Cypriot plan could include Russian help, as Russia has multi-billion dollar investments in Cyprus.
Russians, including wealthy tycoons, hold between a third and half of all Cypriot bank deposits.
Russian PM Dmitry Medvedev has poured scorn on the eurozone’s bailout plan for Cyprus, accusing EU leaders of behaving “like a bull in a china shop”.
Dmitry Medvedev told European Commission President Jose Manuel Barroso in Moscow on Thursday that all interested parties, including Russia, should be included in a deal for Cyprus.
The Cypriot Finance Minister Michalis Sarris is in Moscow for a second day to negotiate assistance.
Analysts say Russia may provide more funding in return for interests in Cyprus’ offshore energy fields.
The country’s two biggest banks, Bank of Cyprus and Laiki, are believed to be reliant on the ECB’s Emergency Liquidity Assistance, provided via the Central Bank of Cyprus.
The ECB’s governing council can halt ELA if it believes the banks receiving it are no longer solvent, the Financial Times newspaper reports.
The banking sector dominates Cyprus’ economy and if a viable rescue is not organized soon the island state risks having to abandon the euro.
Cypriot banks were among the bondholders who had to take a big “haircut” in the second massive bailout for Greece.
Since 2008 the eurozone has been badly bruised by the massive bailouts provided for Greece, the Republic of Ireland and Portugal. There is a widespread reluctance to commit more EU taxpayers’ money to ailing banks in southern Europe.
Cyprus is a resilient nation and the banks are still giving out cash through machines – although with limits, and some are running low.
Some businesses are now refusing credit card payments.
Cyprus’ parliament has rejected the controversial levy on bank deposits, proposed as part of an EU-IMF 10 billion-euro ($13 billion) bailout package.
No MPs voted for the bill, with 36 voting against and 19 abstaining.
Cyprus’ finance ministry had modified the package, proposing an exemption for savers with smaller deposits, but opposition had remained fierce.
Thousands of protesters who had filled the streets outside parliament reacted with joy to the news of the vote.
EU finance ministers have warned that Cyprus’ two biggest banks will collapse if the deal does not go through in some form.
However, there has been widespread outrage on the island at the prospect of ordinary savers being forced to pay a levy of 6.75%
The plan was changed to exempt savers with less than 20,000 euros, with those over 100,000 euros charged at 9.9%, but this was not enough to placate critics.
Several MPs during the parliament debate on Tuesday evening denounced the proposed plan as “blackmail”.
President Nicos Anastasiades had urged all parties to back the bailout, saying Cyprus will be bankrupt if the deal does not go ahead.
But he also said earlier on Tuesday that MPs were likely to reject the levy, despite the modifications.
“They feel and they think it’s unjust and that it is against the interests of Cyprus at large. But I have to admit that it was something which was not expected by the troika and by our friends, the Eurogroup.”
The president has called an emergency meeting of political party leaders on Wednesday morning to discuss the way forward.
Cyprus’ parliament has rejected the controversial levy on bank deposits
The president of the Eurogroup of eurozone finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, emphasized on Monday that no other eurozone country would be forced to impose such a levy.
The Cyprus central bank chief, Panicos Demetriades, has warned that scrapping the tax on small savers would scupper the plan to raise 5.8 billion euros in total from bank deposits. He also predicted account holders could suddenly withdraw 10% or more of the total in Cypriot banks if the levy was imposed.
Fearing a run on accounts, Cyprus has shut its banks until at least Thursday. The local stock exchange also remains closed.
Cyprus’ banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.
Panicos Demetriades said that he favored imposing the levy only on deposits larger than 100,000 euros, with eurozone finance ministers also suggesting such a move.
Instead, they argue that wealthier savers should pay the levy at a higher rate – losing more than 15% of their investments, correspondents say.
However, many of those larger deposits are held by Russians, and Russian leaders have already reacted angrily to the Cypriot levy – on Monday President Vladimir Putin called it “unfair, unprofessional and dangerous”.
Of the estimated 68 billion euros in total held in Cypriot bank accounts about 40% belongs to foreigners – most of them thought to be Russians.
The Cypriot government fears a higher levy on these larger deposits would prompt many large investors to withdraw from the island and would effectively destroy its financial sector.
Russia has also said it may reconsider the terms of a 2.5 billion-euro loan it made to Cyprus in 2011, which was separate from the proposed eurozone bailout.
Cypriot Finance Minister Michalis Sarris arrived in Moscow on Tuesday to see if the repayment on that loan could be delayed until 2020, and whether the interest rate could be reduced.
Officials said he would also be looking for “further investment” in his country, correspondents report, with some speculating this might mean Russian access to Cyprus’ large undeveloped gas deposits.
Cyprus’ parliament vote on bailout deal that has sparked huge public anger has been delayed until Tuesday.
President Nicos Anastasiades has been meeting MPs in Nicosia and has indicated he wants the terms amended.
The 10 billion-euro ($13 billion) bailout agreed with the EU and IMF had demanded that all bank customers pay a one-off levy and led to heavy cash withdrawals.
Nicos Anastasiades’ party has 20 seats in the 56-member assembly and needs other parties’ support to ratify the deal.
Asian and European stock markets fell amid uncertainty in Monday’s trading.
Meanwhile, Russian President Vladimir Putin on Monday called the proposed levy “unfair, unprofessional and dangerous”, his spokesman said.
Russian banks and businesses have significant deposits in Cyprus.
The debate and vote in Cyprus’ parliament has now been postponed until 18:00 local time on Tuesday. It was initially to have been held on Sunday.
President Nicos Anastasiades is at present holding talks with ministers and lawmakers at the parliament building in Nicosia, which has been cordoned off to prevent protests.
There are suggestions Mr Anastasiades is looking at lowering the cost to those with smaller savings.
Under the currently agreed terms, depositors with less than 100,000 euros in Cyprus accounts would have to pay a one-time tax of 6.75%. Those with sums over that threshold would pay 9.9%.
The president may want to lower the former rate to 3%, while raising the levy on the larger depositors to 12.5%.
An EU source told Agence France-Presse there could be a three-way split on the level of levy, grouped into accounts holding less than 100,000 euros, between 100,000 and 500,000 and more than 500,000.
Joerg Asmussen, a member of the European Central Bank’s governing council, said there could be a change to the deal.
He said: “It’s the Cyprus government’s adjustment programme. If Cyprus’ president wants to change something regarding the levy on bank deposits, that’s in his hands. He must just make sure that the financing is intact.”
German government spokesman Steffen Seibert echoed his comments, saying: “How the country makes its contribution, how it makes the payments, is up to the Cyprus government.”
Nicos Anastasiades insists that without the bailout Cyprus could face bankruptcy and a possible exit from the eurozone.
The banks are closed on Monday for a national holiday and could remain shut on Tuesday to avoid mass withdrawals.
Cyprus’ parliament vote on bailout deal that has sparked huge public anger has been delayed until Tuesday
Opposition leader George Lillikas, an independent, said the president had “betrayed the people’s vote”.Under the bailout’s current terms, depositors will be compensated with the equivalent amount in shares in their banks, and Nicos Anastasiades promised that those who kept deposits in Cypriot banks for the next two years would be given bonds linked to revenues from natural gas.
Cyprus announced the discovery of a field containing between 5 and 8 trillion cubic feet of natural gas under the Mediterranean Sea in 2011 but Turkey disputes its drilling rights.
Reports have suggested that eurozone leaders, particularly in Germany, insisted on the levy because of the large amount of Russian capital kept in Cypriot banks, amid fears of money-laundering.
However, German Finance Minister Wolfgang Schaeuble said he and the International Monetary Fund had been in favor of “respecting the deposit guarantee for accounts up to 100,000” euros.
He said it was the Cypriot government, the European Commission and the European Central Bank that had decided on the levy terms and that “they now must explain this to the Cypriot people”.
Russian presidential spokesman Dmitry Peskov said on Monday: “Assessing the possible decision of imposing additional tax by Cyprus on deposits, [President] Putin said that this decision, if taken, would be unfair, unprofessional and dangerous.”
PM Dmitry Medvedev said: “It looks simply like the confiscation of other people’s money.”
The Moody’s ratings agency estimates that, at the end of 2012, Russian banks had placed $12 billion in Cypriot banks, with corporate deposits at $19 billion. So Russian corporate and individual investors could lose up to $2 billion.
The Russian government also gave Cyprus a 2.5 billion euro loan in 2011. Russian Finance Minister Anton Siluanov told the Interfax news agency on Monday that Moscow would consider extending the loan period and restructuring the repayments.
The proposed savings levy has drawn criticism from economic analysts. Michael Hewson, of CMC Markets, told the Press Association: “If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job.”
It is clear that negotiators of the bailout in Brussels drastically underestimated the reaction in Cyprus, says our correspondent, Mark Lowen.
A tiny eurozone economy feels it is being blackmailed by the most powerful, and the growing resentment will do nothing to foster European solidarity.
If the levy goes ahead, it will affect many non-Cypriots with bank accounts.
However, depositors in the overseas arms of Cypriot banks will not be hit.