Factbox: Main points of Euro group-Cyprus deal
These are the main points of a deal reached early between the eurozone nations and Cyprus, as presented in a statement released by the Eurogroup of finance ministers.
— Cyprus’s Popular Bank — Laiki in Greek — will be effectively shut down “with full contribution of equity shareholders, bond holders and uninsured depositors.”
It is understood that deposits up to 100,000 euros ($130,000) are insured, and thus not subject to any tax or “haircut.”
— Laiki will be broken up into an institution with valid assets and a “bad bank” that takes on the risky ones. The bad bank will be slowly dissolved.
— The valid part of Laiki will be integrated into the Bank of Cyprus (BoC).
That integration will be assisted with 9.0 billion euros of Emergency Liquidity Assistance provided by the European Central Bank (ECB). “Only uninsured deposits in BoC will remain frozen until recapitalisation has been effected, and may subsequently be subject to appropriate conditions.”
— The ECB governing council will continue to provide the BoC with liquidity “in line with applicable rules.”
— The BoC is to be recapitalised “through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders.”
— The conversion, details of which remain to be determined, “will be such that a capital ratio of 9% is secured by the end of the programme.”
A capital ratio is that of a bank’s own capital and reserves to its total assets and serves as a measure of its ability to withstand financial shocks.
— “All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.”
— Loans by the European Union, European Central Bank and International Monetary Fund, expected to total up to 10 billion euros, “will not be used to recapitalise Laiki and Bank of Cyprus.
“The Eurogroup is convinced that this solution is the best way forward for ensuring the overall viability and stability of the Cyprus financial system and its capability to finance the Cyprus economy,” the statement concluded.