Loading in 2 Seconds...
Loading in 2 Seconds...
An Update on the Crisis George Z. Georgiou – George Z. Georgiou & Associates LLC September 20 13. Introduction and Background Information: The Initial Agreement.
George Z. Georgiou –
George Z. Georgiou & Associates LLC
Initial Agreement between the Republic of Cyprus European Union (via the Eurogroup, EC and the ECB) reached on the 16th March 2013
10 billion bailout for the Cypriot economy
The remaining 6 billion was to be raised by the Republic of Cyprus via a bank levy of 9.9% on uninsured deposits
The parliament rejected the draft legislation designed to implement the initial agreement between the Republic of Cyprus and the EU on the 19th March
Having rejected the initial agreement between the Republic of Cyprus and the European Union, the Parliament passed eight laws aimed at rescuing the Cypriot banking sector on 22nd March 2013. The two Laws we will be focusing on are the following:
The Resolution of Credit and Other Institutions Law of 2013 (Law 17(I)/2013)
The Enforcement of Restrictive Measures on Transactions in Case of Emergency Law of 2013 (Law 12(I)/2013)
Summary of Main Provisions
The Central Bank of Cyprus was appointed as Resolution Authority
The Central Bank of Cyprus in cooperation with the Ministry of Finance were authorised and empowered to make joint decisions
The Resolution Authority was granted the ability to take resolution steps in relation to any credit institution provided three requirements are satisfied
The Enforcement of Restrictive Measures on Transactions in Case of Emergency Law of 2013
All insured deposits (i.e. up to EUR 100,000) are protected
The Bank is to be recapitalised by imposition of a 4.75% levy on uninsured deposits (i.e. over EUR 100,000) at the Bank of Cyprus
15% of uninsured deposits can be withdrawn
The remaining 37.5% of the uninsured deposits is to be split equally into three fixed term deposits with maturity periods of 6, 9 and 12 months which the Bank will have an option to renew for the same periods upon expiry of these terms.
Decrees 103/2013 (in relation to the Bank of Cyprus) and 104/2013 (in relation to Laiki Bank) were issued under the authority granted by Law 12(I)/2013 by which the following capital controls were imposed:
Daily withdrawals from banks and ATMs were limited to EUR 300 and transfers of money outside Cyprus were limited to EUR 2,000 per month
The cashing of cheques was banned
The opening of new accounts was also banned
Administrative Actions were issued against the validity of Laws 17(I)/2013 and 12(I)/2013 by the depositors of Laiki Bank and the Bank of Cyprus. In summary, it was argued that:
(i) Law 17(I)/2013 was in breach of the Right to Property enshrined in the Constitution of the Republic of Cyprus and Article 1 of the First Protocol of the European Convention of Human Rights
(ii) Law 12(I)2013 was in breach of Article 63 of the Treaty on the Functioning of the European Union which contains the freedom of movement of capital.
The civil proceedings will require the courts to examine:
whether the banks have breached their contractual obligations towards the claimants as a result of state and/or European intervention; and
whether the intervention violates the Constitution of the Republic of Cyprus and European law.
The Supreme Court indicated in its ruling that the main issue that will arise in these civil claims is likely to be whether the loss suffered by the depositors is greater than the loss they would have suffered had the Decrees not been issued and implemented.