By Evdokimos Xenophontos
IN ITS LEADER article last Sunday, under the headline ‘Can bad management and poor judgement be regarded as crimes’, the Sunday Mail concluded that if bad management decisions and poor judgement are regarded as crimes, the president of the republic should have been behind bars by now because he was as guilty as the bankers for making decisions, with catastrophic consequences for the Cyprus economy.
I agree with the leader writer that if bad management decisions and poor judgement are regarded as “crimes”, there are many “criminals” responsible for the catastrophe of the Cyprus economy and of the Cyprus banking system.
The people primarily responsible for the Cyprus catastrophe are:
The former Central Bank (CBC) governor Athanasios Orphanides who allowed the banks to carry on reckless banking practices like the excessive investments in Greek government bonds (GGBs) and the aggressive expansion in property lending, using the foreign deposits which he knew, or ought to have known, were hot money and should not be allowed to be used for long term lending and/or risky investments.
The CBC governor Orphanides for not informing President Demetris Christofias by email or text message or a press announcement (if Christofias refused to see him) about the catastrophic consequences of the PSI of the GGBs and how he could mitigate these losses.
The CBC governor Orphanides for allowing if not also encouraging the banks to market complex hybrid instruments to their retail customers in his effort to increase the capital of the banks, ignoring his parallel responsibility to protect the investing public (conflict of interest).
President Christofias and his government for running up excessive budget deficits through excessive additions to the civil service and excessive salary increases and high social benefits which all relied on excessive short term borrowings.
President Christofias for agreeing to the PSI without putting forward any conditions to safeguard the Cyprus banking system, as if its health was of no concern to the Cyprus government.
President Christofias and his government for guaranteeing (to the EU) all Cyprus deposits below €100,000 while they knew, or ought to have known, that the government could not afford to honour such a commitment particularly when he and his government went out of their way to make public statements against the Cyprus banks.
The former CBC governor Panicos Demetriades for making a public statement, soon after taking over as governor, that the Cyprus banks were under-provided or undercapitalised by €10 billion and later encouraging PIMCO to report high under-capitalisations. Did he not appreciate/realise that the bank depositors would not sit and wait to watch the ship (the Cyprus banking system) sink with their deposits in it? Did he not realise that his statement would become a self-fulfilling prophecy?
The members of the House of Representatives who, through (in my opinion) poor judgement, rejected the first Eurogroup decision which would not have catastrophic consequences.
The members of the House of Representatives who, in one night, passed the Cyprus Banks Resolution Law, without even reading it and without realising its catastrophic consequences. They happily authorised the so called Resolution Authority (one person) to do anything lawful or unlawful with their blessing.
The members of the House of Representatives who were pressurising the CBC governor Orphanides to allow the banks to expand their property lending when he tried to reduce the loan to value parameters.
Those who decided the fire sales of the Greek branches of the Cyprus banks against their will and with catastrophic consequences.
Those who decided the compulsory absorption of the so called good Laiki Bank by the Bank of Cyprus and thereby transferring the excessive obligations of that bank in terms of Emergency Liquidity Assistance (ELA) borrowings (which were ultimately CBC or Cyprus government obligations) to the Bank of Cyprus. At the same time they also transferred the so called guaranteed deposits (guaranteed by the insolvent Cyprus state) to the Bank of Cyprus. This transaction also had consequential effects of inter alia increased capital requirements (in respect of the risk-waited assets transferred to match the liabilities). These capital requirements were met by additional (higher) bail-ins of the BoC depositors.
Those who agreed to the catastrophic bail-in of the BoC deposits in order to avoid their own obligations towards the ELA debt and towards the so called guaranteed deposits of Laiki (guaranteed by the Cyprus government which ought to have known, when committing itself, that it was not in a position to honour such a commitment).
Admittedly the banks and the bankers also made bad decisions and followed reckless practices for which those responsible must be called to account. However, their crimes, if they can be considered crimes, do not compare (in terms of catastrophic consequences) with the above.
Therefore, if the attorney general has a mandate to establish who are primarily responsible for the catastrophe of the Cyprus economy and its banking system, the people listed above should not be excluded.
Evdokimos Xenophontos was the Bank of Cyrus Group chief general manager from 1993 until the end of 2004 when he retired from executive duties. He was also a member of the board of directors of the Bank of Cyprus from 1998 until 2013.