Cyprus update

This morning’s agreement outlining a solution to the stalemate that has gripped Cyprus for more than a week was an important development.    The official Eurogroup statement can be found here .

Among the key provisions:

  • Financial assistance up to EUR 10bn for Cyprus
    Reiteration of the deposit guarantee for depositors holding less than EUR 100,000.
  • Laiki bank (the #2 bank in Cyprus) will be split into two – a “good” bank that will be subsumed into the Bank of Cyprus (the #1 bank) and a “bad” bank that will be wound down.
  • Temporary capital controls (e.g., limits on daily withdrawals) to ensure orderly reopening of banks in Cyprus that have been closed since March 16.
  • Uninsured deposits (those over EUR 100,000) remain frozen pending recapitalization of the Bank of Cyprus. The recapitalization will occur “through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders”. The target capital ratio for the recapitalization is 9%.

As noted in my NY Times interview this morning, this is definitely an improvement over the previous proposal and provides some hope that the situation in Cyprus will remain contained.