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.