Cyprus Mail

‘Don’t take word of foreign press’

The CBC governor at the House yesterday (Photo: Christos Theodorides)

By George Psyllides

Central Bank (CBC) Governor Chrystalla Georghadji told MPs not to adopt foreign media reports regarding the emergency liquidity assistance (ELA) amassed by Laiki Bank before it collapsed last year.

“We should not flagellate ourselves,” she said at the House Ethics committee on Tuesday, without elaborating further.

The New York Times reported last week that former CBC governor Panicos Demetriades had played down concerns raised over the granting of some €9.0 billion in ELA to now-defunct Laiki Bank in a series of sessions of the European Central Bank’s governing council in 2012.

ECB rules stated that ELA funding, available to solvent but illiquid commercial banks only against collateral, was the responsibility of national central banks, with the governing council holding effective veto power.

According to governing council minutes cited by the paper, late in 2012, and as Laiki’s ELA lifeline mounted, German central banker Jens Weidmann started raising objections about the extent of the ECB’s exposure to the woefully undercapitalised bank.

And in January 2013, two months before the dramatic Eurogroup decisions that wound Laiki down and converted roughly half of uninsured deposits into Bank of Cyprus equity, Weidmann claimed that the value of the collateral posted by Laiki for ELA had been inflated by about €1.3 billion.
Demetriades has rejected the report.

On Tuesday, a banking source said the minutes had been used in a misleading manner.

There was indeed a difference in the value of the collateral but that was due to it being written-down because of the risks faced by the Cypriot economy.

The collateral submitted was worth €17.9 billion but it was valued at €11.5 billion by the CBC. The European Central Bank cut them further to €10.5 billion.
When the issue was discussed by the ECB board, the source said, an executive member noted that both calculation methods were acceptable.

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