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Cyprus' Laiki Bank faces possible closure

Bank was the worst affected by a restructuring of Greek bonds in 2012, writing down 3bn euros

Officials at Laiki (Popular) Bank, the weakest of Cyprus' three largest banks, tell EnetEnglish that an announced 'resolution' of the bank is likely to mean closure.

Cypriots and foreigners wait in line to withdraw money from an ATM of a Laiki Bank branch in Nicosia, 21 March 2013 (AFP) Cypriots and foreigners wait in line to withdraw money from an ATM of a Laiki Bank branch in Nicosia, 21 March 2013 (AFP) "By 'resolution' I don't understand 'restructuring' or division into a good and a bad bank," said one official on condition of anonymity. "Our information is that all unguaranteed assets of over 100,000 euros will simply be taken to cover nonperforming loans and other liabilities. Essentially, it will destroy the bank."

A former senior official at the bank concurred. "I don't know what resolution means, I haven't heard the details, but I think we shall end up not saving the bank but closing it," he said.

The official spoke amid a furore of speculation sparked on Thursday evening by Panikos Dimitriadis, the central banker of Cyprus, who announced that the bank would be "resolved".

Laiki was the worst affected by a restructuring of Greek bonds in March 2012, writing down 3bn euros. It has been dependent on emergency cash from the European Central Bank ever since, borrowing up to nine billion euros according to bankers. But earlier on Thursday the ECB said it would cut emergency liquidity to the bank after Monday, because the bank is insolvent. Liquidity would also be cut off to the Bank of Cyprus, the island's biggest. 

That statement has widely been interpreted as designed to put political pressure on the Cypriot government to submit to the terms of a bailout it agreed to on March 16, but failed to pass in parliament three days later.

According to the terms, Cyprus must generate 5.8bn euros from public assets in order to receive a 10bn euro loan from the eurozone. The government originally proposed to raise this through a one-off levy of up to 9.9% on all bank deposits. The measure caused an outcry and was defeated in the 56 seat parliament by 36 voters against, none in favour and 19 abstentions from the ruling party.

That led to talk of a 'Plan B' for raising the money. Lawmakers tell EnetEnglish that that will consist of a Solidarity Fund consisting of public assets, but inviting private investors to contribute. A possible levy is not ruled out, they say.

"A few days ago we were celebrating avoiding a haircut," the Laiki official said. "But this is much worse. It is one thing to lose 5-10 percent of your deposits. It is quite another to lose everything." 

Hundreds of the bank's 3,000 employees gathered around parliament after Dimitriadis' announcement and chanted "Hands off Laiki Bank!"

 

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