THE government said yesterday it would guarantee all bank deposits up to €100,000, as interests rates were slashed globally and world markets, including Cyprus, continued to tumble.
“The first step and our first commitment is that as a government, we will support any bank or co-op that experiences any difficulty in order to protect people’s deposits,” Stavrakis said yesterday after a meeting with commercial bank bosses.
On Tuesday, Stavrakis announced that up to €50,000 in bank deposits would be guaranteed for a period of one year in line with a decision taken by EU Finance Ministers in Luxembourg to raise the ceiling across the EU from €20,000.
But after meeting the commercial banks yesterday, he said: “We, as Cyprus, will table legislation for the protection of deposits to a minimum of €100,000.
“This is another step to consolidate full confidence in the banking system and the island’s economy.” He also said the move should help attract even more depositors to Cypriot banks.
To further boost confidence, Stavrakis said the government itself currently had €225 million deposited in several banks and co-ops on the island.
Stavrakis did not offer specifics on the timeframe for the €100,000 guarantee – whether it too would be for one year – and said the whole matter would be studied in the framework of the new legislation. This would include whether the €100,000 was per account or per person.
He said Central Bank Governor Athanasios Orphanides was in complete agreement with the government’s actions and proposals.
“This should now eliminate any trace of doubt,” Stavrakis added.
“I want to be absolutely clear: we have a very safe, secure and robust banking and co-op banking system. There is no risk. It is a guarantee which most likely will never have to be implemented.”
The Minister said that in the unlikely event it was needed, the government was in a position to offer the necessary financial support.
Stavrakis recently said there was €1.9 billion in state coffers, but according to figures quoted by Reuters yesterday, provisional August data from the Central Bank showed that total deposits in local banks held by Cypriots was just short of €40 billion, while the total for non-Cypriots was around €16 billion.
Stavrakis also welcomed the co-ordinated move by Central Banks around the globe yesterday to cut interest rates by half a percentage point.
“This is a very welcome decision, which aims further to boost investor confidence in the financial system,” he said.
The Minister said it also meant that the cost of borrowing for Cypriot households and businesses would be reduced by half a percentage point.
However, markets across the world took only mild comfort from the dramatic gesture to cut rates as they did to the EU Finance Ministers’ guarantee decision on Tuesday.
The EU decision was taken after last Friday’s US $700 bailout failed to restore confidence in global financial markets. Shares tanked on Monday and showed a mixed response on Tuesday, including those on the Cyprus Stock Exchange (CSE).
Yesterday, the CSE’s general index opened 100 points down on Tuesday’s close, with the three main banks again bearing the brunt. Although the index looked as if it was heading back to the 1,900-point mark in mid-afternoon, it then slumped back to 1,800, more than 5.0 per cent down, before rebounding slightly to close 2.8 per cent down for the day.
Bank of Cyprus managed to break even, closing at €4.94, but Marfin Laiki and Hellenic Bank lost 6.7 per cent and 3.0 per cent respectively to end at €3.04 and €1.60.
