A GOVERNMENT bill guaranteeing bank deposits up to €100,000 is in its final stages and should come before parliament for voting sometime over the next couple of weeks.
It has been six months since the government announced the move, after a decision by EU Finance Ministers in Luxembourg last October that up to €50,000 in bank deposits would be guaranteed for a period of one year.
At the time, Finance Minister Charilaos Stavrakis said Cyprus would go one better by protecting deposits up to €100,000, adding that his ministry would be tabling the relevant legislation.
Six months on, the bill has finally been drafted and is currently with the Attorney-general’s office for legal vetting. Assuming it gets the nod from the AG—and that’s considered a formality—it will be forwarded to the Cabinet and then on to parliament.
The bill will guarantee bank deposits up to €100,000 per account per bank, in any currency. For example, a person holding two accounts in two different banks would have each of these four accounts covered, making it good sense to spread one’s savings.
Currently, commercial banks and cooperatives guarantee depositors’ cash up to €20,000.
Moreover, bringing local banking practices in line with the relevant EU directive, if a bank should go bust from now on it must refund its depositors within a maximum of 20 days. The repayment period currently is significantly longer—three months.
It’s not clear whether the new guarantee system will be established as a temporary measure for a year or two, or a permanent fixture.
The bill provides for the setting up of a guarantee fund that is covered jointly by the government and banks.
“It is an ex-post fund, meaning that if a bank should declare bankruptcy, then afterwards all the other banks and the government get together to decide how the money will be put up,” a bank source explained.
“Provisions have been made for the necessary capital, but the money is not available beforehand,” he added.
Asked why the steering committee—that includes experts from the Finance Ministry, the Central Bank and the association of commercial banks—had taken so long to draft the bill, another source said that there were a number of technical issues to be ironed out first.
One major issue involved the governments and banking authorities of Cyprus and Greece to reach agreement on a common guarantee limit in their respective banking systems, to ensure fair competition, given the strong presence of Cypriot banks in Greece and Greek banks here. For example, if Greek banks on the island were to offer a lower guarantee then depositors would rush to put their money into Cypriot banks, and vice versa.
The source, who preferred not to be named, was also asked to comment on a European Commission report released last week showing that the Cypriot government has taken no tangible steps to boost financial institutions since the economic crisis hit.
Under a table listing state interventions undertaken thus far (guarantee schemes, recapitalisation schemes, and ad hoc interventions) to support financial institutions, the entries for Cyprus were all blank.
