N ICOSIA – Cyprus is waiting for word from Brussels on a proposal to impose a haircut on deposits over €100,000 at the island’s largest bank as part of efforts to secure approval for a bailout package that will stave off bankruptcy.
The House of Representatives is on standby to consider a draft bill to impose a 22% to 25% haircut on uninsured Bank of Cyprus depositors. On Tuesday, MPs overwhelming rejected a haircut of deposits across the board for all depositors except those with less than €20,000.
But in a dramatic turn of events since then, Cyprus authorities were told that European Central Bank emergency funds to the banking system would stop on Monday, pushing them into default. The banks have been closed the past week under a Finance Ministry decree to prevent a run.
President Anastasiades is reported by state radio to be waiting from the Troika to clarify whether the proposal is acceptable. If he secures the go-ahead, the bill will go to the House for a vote and if approved the president and the political leadership will travel to Brussels to finalise the package, CyBC added.
The eurogroup is expected to hold an extraordinary meeting to discuss the Cyprus bailout tomorrow. An EU-Japan summit has been postponed and top EU officials remain in Brussels to deal with the Cyprus crisis.
It is understood that the proposed haircut would raise some €3b from the €5.8b the NTroika requires Cyprus to raise before it approves a €10b bailout to keep the economy going.
Late on Friday evening the House of Representatives approved a package of bills, including the restructuring of the banking sector that will allow authorities to create a good and bad bank at the Cyprus Popular Bank. The units of the Bank of Cyprus and the Cyprus Popular Bank in Greece have been taken over by Pireas Bank there leading to savings of some €3.6b. MPs yesterday also approved the establishment of a Solidarity Fund and the implementation of controls to prevent massive transfers when banks reopen on Tuesday.