THE House Finance Committee was yesterday presented with a bill that aims to deal with the possibility of a collapse in the banking sector.
“The best time to deal with a possible crisis in the banking sector is when the economy is in a relatively good state,” Finance Minister Charilaos Stavrakis told MPs.
Although he claimed the prospect of a huge banking crisis, similar to those faced elsewhere, was “very, very unlikely”, the minister added: “We prepared this bill in cooperation with the Central Bank to deal with the possibility of a crisis; it aims to give the government the ability to move immediately in the event that a huge crisis hits Cyprus.”
The bill, said Stavrakis, has been viewed positively by the European Central Bank (ECB). “Without this law, we won’t be able to act. The economy is in a prosperous state, but it’s a good idea to be prepared.”
According to the proposed law, the Cabinet will have the power to authorise the release of funds if the government proposes so, to assist the banking sector in the event that a bank is on the verge of collapse. These funds will then have to be approved by Parliament.
“Parliament will be informed regularly, with monthly reports on where the money is going,” said Stavrakis.
“The difference between a bank collapsing and a common company is there will be direct effects on the entire economy. Banks have transactions with a network of at least seven or eight other countries, so if one collapses, this will create a domino effect, leading to the collapse of other banks and companies. We saw in other countries, such as the UK, US and Germany, where the taxpayers had to pay up to support their banking systems.”
CB Spokesman Spyros Stavrinakis explained: “A crisis can start from one bank or more. With this law, the Central Bank will determine whether there is a crisis that will affect the entire banking system.”
Committee Chairman Nicolas Papadopoulos of DIKO said it was commonly agreed there was a need for a structured plan to deal with the crisis. “We need to learn from the mistakes of other states in order to avert problems in our own economy.”
He added, “This is an extremely important bill; a step in the direction of protecting our banking system and economy”.
Papadopoulos said he hoped the law would remain inactive. “But either way, we need to create the structure to deal with a possible crisis and avoid the need to take urgent measures, like other states had to do.”
According to the proposed law, funds will be approved in the form of supplementary budgets, though the matter will be discussed in more detail in coming weeks.
