Cyprus international lenders (ECB, IMF, EC) have raised objections in connection with the Parliament`s intention to amend the law on the resolution of credit institutions in a way that the Central Bank of Cyprus and the Ministry of Finance make up the Resolution Authority.
In its reply to a letter from the Central Bank, the Troika states that although it is not in principle against the idea of a review of the allocation of tasks for the exercise of resolution powers in Cyprus, such a review would need to be thorough with the early involvement and consent of Cyprus` Troika partners.
Furthermore, the Troika strongly urges that any amendment to the resolution law can be introduced only after the Bank of Cyprus has exited resolution in the near future and after thorough consultation with the Troika.
The Troika’s letter was presented Monday before the House of Representatives’ Finance Committee, which continued the discussion on the draft bill, amending the resolution law for credit institutions. The draft bill provides for the resolution authority to be made up by the Central Bank and the Ministry of Finance.
A representative of the Central Bank of Cyprus told the MPs of the Finance Committee that the amendment of the legislation would create practical problems and delay the actions of the Central Bank which aim to consolidate the Bank of Cyprus.
The meeting of the House Committee was also attended by a representative of the Ministry of Finance who said that the Troika is not in favor of any amendment of the law. He added that there is a proposal for the Central Bank to be the resolution authority and that the Central Bank would be taking into account the consent of the Minister of Finance for any decision making.
Following decisions by the Euro area Finance Ministers, collectively called as the Eurogroup, Cyprus will receive a €10 billion bailout from the ESM and the IMF after bailing in bank uninsured deposits in a bid to recapitalize the island`s troubled banks, which posted massive losses worth of €4.5 billion due to the Greek sovereign debt haircut.
Furthermore, the island`s second largest bank, Cyprus Popular Bank, is wound down and its good part (loans and deposits below €100,000) is folded in Bank of Cyprus (BoC). So far 37.5% of uninsured deposits in BoC have been converted into equity, whereas an additional 22.5% remains frozen until the conclusion of an independent evaluation of the Bank`s balance sheet after absorbing the good part of the Cyprus Popular Bank.
