Cyprus has agreed a €10bn (£8.5bn) bailout with the EU and International Monetary Fund that will force huge losses on large deposits.
The FT reports that the deal does not involve a levy on bank accounts but will hit savers with more than €100,000 as part of a major restructuring of Cyprus’ two biggest banks.
The previous bailout packaged threatened a 6.75 per cent levy on savings below €100,000, the level guaranteed under the EU-wide deposit guarantee scheme. Cyprus needed to raise €5.8bn as part of the conditions to access a €10bn loan from the EU it needed to pay its debts.
As there is no new tax involved, the new deal does not need parliamentary approval and came into force when it was agreed this morning.
The European Central Bank had threatened to cut off an emergency liquidity support unless it found agreement on a bailout package today.
The new deal involves closing Cyprus’ second largest lender, the Laika Bank, with its €4.2bn worth of deposits over €100,000 being placed into a ‘bad bank’ and losing a lot more than 20 per cent. Junior and senior bondholders have been wiped out for the first time in the eurozone.
Smaller deposits are being transferred to the largest lender, the Bank of Cyprus, which will be shrunk and restructured. Depositors with more than €100,000 at the Bank of Cyprus may also take a hit as part of bail-in measures to bring the new bank up to EU capital requirements.