By Elias Hazou
A BILL going to the House plenum tomorrow seeks to limit the powers of the Central Bank in the latter’s capacity as the sole resolution authority for financial institutions.
It aims to amend the Resolution on Debt and Other Institutions Act of 2013, which was passed under duress in March and which made the Central Bank the sole resolution authority for banks.
Political parties, particularly ruling DISY, have since grown increasingly wary of the law, which they say gives sweeping powers to the Central Bank governor.
Under the legislative proposal authored by DISY, the resolution authority would instead comprise a trio consisting of the finance ministry, the auditor-general and the Central Bank. – effectively diluting the latter’s hold on issues pertaining to bank resolutions.
During the course of a heated debate at the House finance committee yesterday, Central Bank governor Panicos Demetriades doubted whether the new proposed entity could get any work done.
Hitting back at criticism, the central banker said he had never wanted to wield the powers vested in him as the sole resolution authority.
“I wish it [the resolution authority] had been the finance ministry instead,” Demetriades told MPs.
“It is the most painful thing I have ever done, and will haunt me for the rest of my life,” he added, evidently alluding to the winding down of Laiki Bank and the recapitalisation of Bank of Cyprus.
But the Central Bank chief questioned whether Cyprus’ international lenders would endorse a change in the bank resolution law, warning that it could put the whole bailout programme at risk.
By way of compromise, DISY has momentarily dropped two other proposed amendments to the resolution law. The first would have established an escrow agent and an escrow account for credit institutions undergoing resolution – a move intended to bypass the Central Bank.
The second amendment, also set aside for now, sought to strip the Laiki administrator of the right to block-vote on behalf of all Laiki legacy creditors during annual general meetings of the Bank of Cyprus (BoC). Laiki legacy creditors now account for approximately 18 per cent of the BoC shareholder base. The Laiki administrator was appointed by Central Bank governor Panicos Demetriades in his capacity as the resolution authority.
Both politicians and financiers worry that the Laiki administrator – who incidentally is seeking a seat on BoC’s new board of directors – may come under Demetriades’ thumb and be reduced to a figurehead.
BoC is holding an AGM early next month to elect its new board of directors since the bank exited administration.
Although the bank’s new shareholder base is not yet fixed, reports say that 29 per cent of stock belongs to Cypriots, 18 per cent to the ‘legacy’ Laiki, 41 per cent to foreign nationals and another 12 per cent to foreign depositors represented by a handful of Cypriot law firms and auditors.
Meanwhile a new ‘bloc’ of BoC stakeholders has been coalescing and is mobilising ahead of the bank’s AGM. The group are holding a meeting at Nicosia’s Hilton Park hotel tomorrow at 6pm.
The group are represented by prominent law firms – including that of Kypros Chrysostomides, a former justice minister – and by interests from the Church of Cyprus, which previously had held about 5 per cent of shares in BoC.
Speaking to the media yesterday, Chysostomides said their goal was to thwart the 18 per cent of legacy Laiki creditors and the 12 per cent represented by various law firms from gaining control of the bank’s board.