Cyprus Deal Closes Bank and Force Losses

March 24
11:30 PM 2013

Cyprus was able to strike a deal with its international lenders through a last minute agreement. In exchange for a Eur10 billion bailout, the island country would have to shut down its second largest bank and impose losses on it uninsured depositors.

The agreement was reached a few hours before the deadline set on bankruptcy for the country and collapse of its banking system. President Nicos Anastasiades and the representatives from the European Union, European Central Bank and the International Monetary Fund working overtime to reach a compromise.

The bank to be closed down is the Popular Bank of Cyprus, more popularly known as Laiki and shifting its deposits below Eur100,000 to the Bank of Cyprus to create a 'good bank'. As for deposits worth Eur100,00 and above in both banks, there are no guarantees under EU law and they would be frozen to be utilized to pay Laiki's debts and recapitalize the other bank through an equity for deposit plan.

The deposits in Laiki to be affected is worth around Eur4.2 billion mostly from wealthy Russian depositors. There will also be thousands of job losses and bondholders in Laiki would be required to contribute to the health and recovery of the Bank of Cyprus.

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