Cyprus Mail

Troika email slap in the face over bank resolution

By Elias Hazou
LAWMAKERS were none too happy yesterday after the troika of international lenders advised Cyprus against plans to have the government share responsibility for bank resolution measures along with the Central Bank.

In an email, European Commission official Maarten Verwey said the troika – European Commission, European Central Bank and International Monetary Fund – was “considerably surprised” on learning that Cypriot legislators were yesterday due to discuss an amendment to the current Resolution Law introducing the finance minister as co-Resolution Authority.

On March 22 parliament had adopted legislation establishing a framework for the recovery and resolution of credit institutions, drawing on the European Commission’s draft Bank Recovery and Resolution Directive.

The Resolution Law unequivocally designates the Central Bank as the Resolution Authority, but goes on to say that the Central Bank “…may decide jointly with the finance ministry the taking of resolution measures…”

And the memorandum of understanding between Cyprus and the troika states that the Central Bank of Cyprus “is the single resolution authority for banks and cooperative credit institutions alike.”

“Although there may be some benefits in broader sharing of responsibility for resolution in Cyprus,” Verwey’s email noted, “and despite the fact that the troika is not in principle unfavourable to a frank discussion in this matter, it is fundamental that if Cyprus is to introduce laws that are explicitly contradictory to the MoU, they are introduced after appropriate consultation and with consent of the troika.”

Dated June 2, the email (sent from Verwey’s iPad) is addressed to Finance Minister Harris Georgiades and Central Bank governor Panicos Demetriades.

It goes on to say that the proposed amendment to the law – a legislative proposal co-authored by the ruling DISY party and the Greens – “is not in line with the proposed Bank Recovery and Resolution Directive (BRRD).

“If there are multiple Resolution Authorities, the latest compromise proposal for the BRRD calls for responsibilities to be split between the authorities rather than having decisions shared.”

The ECB official advises Cypriot legislators to “carefully reflect on the treatment of on-going resolution processes before proceeding with any amendments to the status quo.
“This is not an opportune moment for any actual reallocation of tasks,” he adds.

The email was sent also on behalf of the IMF’s Delia Velculescu and European Central Bank official Isabel von Koppen Mertes.

Lawmakers, who were yesterday shown the email by officials from the Central Bank and the finance ministry, were piqued at the troika’s apparent meddling with domestic decision-making.

“It seems the members of the troika have been misinformed by some persons about the intentions of parliament,” said DIKO MP Nicholas Papadopoulos, chairman of the House Finance Committee.

Nevertheless, he added, parliament would take the troika’s recommendations under advisement.

Far from seeking to delay the restructuring of Bank of Cyprus, Papadopoulos said, parliamentarians want to speed up the process so that the bank can return to normal operations as soon as possible.

Greens MP George Perdikis said it was clear the troika had got its information from the Central Bank, and accused the regulator of “ratting out” parliament to the troika.
That’s because lawmakers caught a glimpse of another part of Verwey’s email, which read: “Thank you Michael for alerting me to…”

The “Michalis” was understood to be Michalis Stylianou, a senior Central Bank official – indicating that that it was the Central Bank which drew Verwey’s attention to the legislative proposal.

Perdikis ruled out any chance of parliament asking for the troika’s consent on the bill.
“That would mean parliament relinquishing the last remaining vestiges of popular sovereignty,” he said.

And DISY’s Prodromos Prodromou likewise said legislators would press ahead with the legislative proposal regardless.

Only main opposition party AKEL sided with the troika, arguing that the DISY-Greens bill seeks to limit the powers of the Central Bank and its governor, an independent official.

The DISY party has floated a number of ideas designed to curb the authority of the central banker, such as appointing members on the Central Bank board with veto powers over the governor.

The administration has been openly critical of the Central Bank’s handling of the restructuring of Bank of Cyprus, which it says is proceeding at a snail’s pace.

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