THE Central Bank is drafting regulation to create a financial stability fund, aiming for an initial amount of around €500 million euros through contributions from banks, its governor Athanasios Orphanides said yesterday.
“As an initial target, our aim is to build a fund of around 3.0 per cent of GDP,” Orphanides, a member of the governing council of the European Central Bank (ECB), told lawmakers in parliament.
That figure corresponds to about €500 million, he said. “Our aim is to have this fund ready by September,” Orphanides told the House Finance Committee.
“The creation of a financial stability fund is of primary importance to ensure the credibility of the banking system, irrespective of the state of public finances which as we know is not in the best of state of late.”
This fund will run independently of plans by the finance ministry to impose a 0.095 per cent levy on financial sector deposits.
That levy will generate around €120 million for its two year validity in 2011 and 2012.
From the accumulated levy, some €50 million will be deposited in an account, held by the Central Bank which will go towards the financial stability fund.
The remainder will go to the state.
Initial legislative drafts prepared by the finance ministry had seen €50 million in total going into an ad hoc fund for bank stability, but failed to take into account the Central Bank was working in tandem to create its own financial stability fund.
New revisions to the levy draft also specifies cooperative credit societies in addition to banks in paying a levy, applicable for two years.
The levy cannot exceed 20 per cent of taxable income.
In a report last week, Moody’s said it estimated that around €2.7 billion in capital, some 17 per cent of Cyprus’ GDP, would be required to restore the Cypriot banking sector’s core Tier 1 capital to current levels if the assumptions in their stress tests materialised.
“At this moment, the bank tax is basically the only taxation the private sector is asked to pay and is based on a correct and fair formula,” Finance Minister Charilaos Stavrakis said, urging lawmakers to approve the bill immediately.
Stavrakis said the bill has been sent to the ECB, which was expected to give its nod.
“I hope parliament will pass this important legislation immediately, which will boost the public finances with 60 million a year for 2011 and 2012,” the minister said.
