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Business Cyprus

CBC delayed in halting internet banking on March 16

The central bank did not immediately stop electronic transfers

By Poly Pantelides

THE CENTRAL Bank of Cyprus (CBC) delayed shutting down internet banking on March 16, giving depositors the chance to move untold millions out of their accounts once news of the bail-in was out of the bag, the inquiry panel heard yesterday.

A former Laiki Bank chairman, Andreas Philippou, told the committee of inquiry investigating how the country’s banks and the economy at large came a step away from destruction, that up until Saturday afternoon on March 16 capital could have left the country via online transfers.

On Friday March 15 up until the early hours of Saturday, eurozone finance ministers, the Eurogroup, were discussing the terms of an unprecedented bail-in or haircut of deposits. Cyprus was pushed into a corner and was forced to accept a bank levy on all deposits in local banks, including on insured depositors with less than €100,000. Depositors waking up on that Saturday to the shocking news were told by local and foreign press that all transactions, including online ones, were under strict controls.

But Philippou said the Central Bank did not shut down internet banking until that Saturday afternoon. Former finance minister Michalis Sarris told the inquiry just a day earlier that the European Central Bank (ECB) told Cyprus to immediately shut down online banking to prevent a capital flight as soon as the Eurogroup meeting came to an end.

“But the Central Bank issued the orders on Saturday afternoon,” Philippou said. The inquiry did not ask for a specific time reference and Philippou did not clarify, nor was he able to say how much money possibly left the country in those several hours. But if his allegations are true, major depositors could have had half a day to transfer millions out of local banks.

After being told about the Eurogroup decision, many people queued up outside banks to withdraw whatever they could from ATMs, amid reports of millions of euros leaving the country in the run-up to the Eurogroup meeting.

President Nicos Anastasiades, who vehemently denied allegations he had tipped off family members, had told the committee of inquiry to look into accusations of politicians, and others, moving their holdings out of Cyprus’ banks. The inquiry later decided to change its remit to leave criminal matters alone.

By the time the inquiry took over, parliament had rejected the first Eurogroup proposal, and following a mad scramble to secure an alternative deal, Cyprus was forced to shut down the island’s second biggest lender, Laiki, and put its biggest bank, the Bank of Cyprus (BoC), under administration. The BoC got landed with Laiki’s emergency liquidity assistance (ELA), and forced major losses on the BoC’s deposits of over €100,000. That was an “unfair and unbalanced” solution, as was the rushed sale of the Greek operations of Cypriot banks, Philippou said.

Philippou, who was chief senior manager at the Central Bank when he retired from the institution in 2003, was appointed Laiki chairman in August 2012 after Sarris was ousted.

Philippou  yesterday disabused claims by some legislators that Laiki had misled them in relation to the massive debt of some €9.6 billion it had amassed in the form of ELA.  There were clear references in bank statements, which referred to Laiki’s ELA obligations which were €9.3 billion at the end of 2011, and with the bank’s balance sheets referring to substantial eurozone funding, Laiki’s liquidity woes were “obvious,” he said. And parliament passed a law in November 2012 to enable the state to guarantee government bonds enabling banks to draw more ELA funding, “that is to say, parliament knew exactly what the situation was when it came to Laiki’s liquidity and its needs,” Philippou said.


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