BEFORE the collapse of the banking sector neither the government nor the parties exercised any control over the banks.
Politicians and parties may have been done favours by the banks such as writing off loans and providing credit facilities without collateral but this underlined the complete supremacy of the bankers.
This was how the banks bought influence, not to mention the cruder methods of big donations to the parties.
The government of the day was also kept on side because the banks were buying big quantities of government debt.
All this changed after the March 2013 bail-in, which saw the collapse of Laiki and the placing of the Bank of Cyprus under the resolution authority.
With the bankers discredited and disempowered, the BoC under the authority of the governor the Central Bank, Hellenic Bank requiring a capital injection and the co-ops needing a state bail-out in excess of a billion euro the politicians decided it was their chance to call the shots.
The investigation carried out by the House Ethics committee was a way of showing the bankers that the politicians were now in control, as deputies sat in judgment of banks, demanding the release of internal communications, lists money transfers and lists of debtors.
The selection of the Cypriot directors of the BoC last September was dictated by the political parties which distributed the seats among their representatives – it was the same way the seats on the boards of semi-governmental organisations were distributed.
Only the parties could have appointed a complete unknown as chairman.
A new precedent had been set, with the parties now extending their influence to the banking sector.
For the co-ops, this did not make a big difference, because they had always been controlled by political parties and unions, but now, being state-owned they were under the authority of the finance minister.
This indicated that the banking sector was under political control.
And what could people have thought after seeing the directors of BoC arriving at the presidential palace for a meeting with President Anastasiades, immediately after which the chairman of the board announced that a bad bank would be set up?
Before this meeting, directors had been arguing against the establishment of the bad bank and had censured the bank’s CEO for publicly supporting the idea.
After this, people surmised that the bank was being run directly by the presidential palace, with some help from the parties.
It was therefore no surprise there were claims last week’s appointment of Public Sector Reform Commissioner Irena Georgiadou as chairperson of Hellenic Bank was dictated by the presidential palace.
Georgiadou was a DISY member that had worked as advisor to the finance minister before being appointed Commissioner by Anastasiades.
Claims the president had given her the chairmanship were inevitable, even if they did not stand up to rational scrutiny.
Hellenic Bank is a public company over which the government exercises no control as it received no state assistance for it re-capitalisation.
But the general view is that the state controls all the banks, a view strengthened this week after DISY publicly criticised the appointments by the Cooperative Central Bank to the boards of its 18 branches.
DISY, obviously felt that not enough of its people had been appointed and thought it legitimate to complain about this alleged injustice.
Politicians, be they from the government or the parties, are helping undermine the already low confidence in the banking sector by creating the impression that they exercise control over it.
Things are bad enough as they are, without people also fearing the self-serving political establishment and its placemen were running the dysfunctional banks.
Politicians would be doing the banking sector a very big service if they kept at a safe distance from it, leaving bank supervision to the Governor of the Central Bank Chrystalla Georghadji who has no other agenda than strengthening the sector.
Georgadji had a showdown on Friday with the directors of the BoC who were opposing the idea of a share issue that would not only improve the bank’s capital base but also boost public confidence as the issue would be taken up by foreign investors.
It was an illustration of how the appointees of the parties on the BoC do not necessarily support the best interests of bank and a strong argument for the need to cut all links between interfering politicians and the banking sector.
The new Governor needs to tackle the matter now. She needs to take steps eliminating the interference of politicians if the banking sector is to recover and win back public trust.