The Initial Agreement - George Z. Georgiou & Associates LLC

Report
An Update on the Crisis
George Z. Georgiou –
George Z. Georgiou & Associates LLC
September 2013
Introduction and Background Information:
The Initial Agreement

Initial Agreement between the Republic of Cyprus European Union (via the
Eurogroup, EC and the ECB) reached on the 16th March 2013

10 billion bailout for the Cypriot economy
The
remaining 6 billion was to be raised by the Republic of Cyprus via a
bank levy of 9.9% on uninsured deposits

The parliament rejected the draft legislation designed to implement the
initial agreement between the Republic of Cyprus and the EU on the 19th
March
Introduction and Background Information: Laws
introduced following the refusal of the Initial
Agreement
Having rejected the initial agreement between the Republic of Cyprus and the European
Union, the Parliament passed eight laws aimed at rescuing the Cypriot banking sector on
22nd March 2013. The two Laws we will be focusing on are the following:

The Resolution of Credit and Other Institutions Law of 2013 (Law 17(I)/2013)

The Enforcement of Restrictive Measures on Transactions in Case of Emergency
Law of 2013 (Law 12(I)/2013)
The Resolution of Credit and Other
Institutions Law of 2013
Summary of Main Provisions
►
The Central Bank of Cyprus was appointed as Resolution Authority
►
The Central Bank of Cyprus in cooperation with the Ministry of Finance
were authorised and empowered to make joint decisions
►
The Resolution Authority was granted the ability to take resolution steps in
relation to any credit institution provided three requirements are satisfied
The Enforcement of Restrictive Measures on
Transactions in Case of Emergency Law of
2013
Summary of Main Provisions
 Prohibition of cashless payments or transfers of deposits/funds from
accounts in Cyprus to accounts held outside Cyprus
Fixed term deposits cannot be terminated before their maturity unless to pay
a pre-existing loan
Specific capital controls aimed at individuals
Ban on opening new accounts other than to existing clients
Introduction and Background
Information: The Alternative
Agreement
 Second agreement reached between the Republic of Cyprus and the European Union
on 25th March 2013
10 billion bailout for the Cypriot economy
4 billion to be raised by the Republic of Cyprus to meet relevant liabilities
 The main feature of the second agreement was its impact on Cyprus’ two largest
banks: The Cyprus Popular Bank (Laiki Bank) and the Bank of Cyprus.
The Impact of the Second Agreement on
Laiki Bank
 The Banks is to be closed and run down over time
All insured deposits (i.e. up to EUR 100,000) are protected
All uninsured desposits (i.e. over EUR 100,000) be levied (i.e. subject to ‘a haircut’)
Bond holders required to contribute 100% of the value of their bonds towards the
debts of the bank (rendering the bonds essentially worthless)
Good assets and insured deposits are to be transferred to the Bank of Cyprus
The Impact of the Second Agreement on the
Bank of Cyprus
► All insured deposits (i.e. up to EUR 100,000) are protected
►The
Bank is to be recapitalised by imposition of a 4.75% levy on uninsured deposits (i.e. over
EUR 100,000) at the Bank of Cyprus
►15%
of uninsured deposits can be withdrawn
►The
remaining 37.5% of the uninsured deposits is to be split equally into three fixed term
deposits with maturity periods of 6, 9 and 12 months which the Bank will have an option to
renew for the same periods upon expiry of these terms.
Decrees Issued Under the Authority Granted by Law
12(I)/2013
Decrees 103/2013 (in relation to the Bank of Cyprus) and 104/2013 (in relation to
Laiki Bank) were issued under the authority granted by Law 12(I)/2013 by which the
following capital controls were imposed:
►Daily
withdrawals from banks and ATMs were limited to EUR 300 and transfers of
money outside Cyprus were limited to EUR 2,000 per month
►The
cashing of cheques was banned
►The
opening of new accounts was also banned
Consequential Claims Pursued in Cyprus
Administrative Actions were issued against the validity of Laws 17(I)/2013 and
12(I)/2013 by the depositors of Laiki Bank and the Bank of Cyprus. In summary, it
was argued that:
(i) Law 17(I)/2013 was in breach of the Right to Property enshrined in the Constitution of
the Republic of Cyprus and Article 1 of the First Protocol of the European
Convention of Human Rights
(ii) Law 12(I)2013 was in breach of Article 63 of the Treaty on the Functioning of the
European Union which contains the freedom of movement of capital.
Civil Proceedings Available Following the
Supreme Court Decision on 07/06/2013
►
The civil proceedings will require the courts to examine:
►
whether the banks have breached their contractual obligations towards the
claimants as a result of state and/or European intervention; and
►
whether the intervention violates the Constitution of the Republic of Cyprus
and European law.
►
The Supreme Court indicated in its ruling that the main issue that will arise
in these civil claims is likely to be whether the loss suffered by the
depositors is greater than the loss they would have suffered had the
Decrees not been issued and implemented.

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