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Former finance minister denounces bail-in allegations

Former Finance Minister Vasos Shiarly back in the spotlight

TWO YEARS later, Cypriot politicians are still arguing over who was to blame for the haircut on bank deposits, a necessary condition for the island’s €10 billion bailout.

Former finance minister Vasos Shiarly entered the fray on Monday, denying that a bill drafted by the previous administration included provisions for a bail-in, or deposit seizure, as a way of recapitalising stricken lenders.

The bill was eventually passed on March 26, around a month after Nicos Anastasiades came to power.

And this after Finance Minister Harris Georgiades said last week that it was the Demetris Christofias’ administration that prepared the necessary legislation in January 2013. Georgiades said Shiarly had addressed a letter to the European Central Bank asking for feedback.

In a written statement on Monday, Shiarly said drafting the bill did not automatically mean accepting a haircut on deposits.

The former minister said it was a general bill based on a European directive, which provided for bail-ins after January 1, 2018.

The directive said that the maximum amount seized should not exceed 10 per cent – has since been cut to 8.0 per cent – and should not include current accounts or maturity deposits.

The directive became law on May 15, 2014.

Shiarly said reports on the matter were “malicious, misleading, and in bad faith”.

“Irrespective of any bailout obligations, the EU mandated that all member-states adopted laws on bank resolution,” he said.

That directive included provisions for a haircut under certain strict conditions, he added.

“The legislation is a tool for resolving credit institutions. This does not mean automatic acceptance of a haircut on deposits,” he said.

The haircut on deposits imposed by the Eurogroup in March 2013 was done under a different scheme than what was provided in the legislation and “should not have been accepted since it was not in line with the European Union directive,” Shiarly said.

He added that the memorandum the previous administration had agreed to in November 29, 2012, provided for bank recapitalisation of up to €10 billion.
On March 14-15, the Eurogroup decided to write-down deposits under €100,000 by 6.7 per cent and those over €100,000 by 9.9 per cent in all banks.

The proposal was eventually rejected by parliament. Ten days later, the Eurogroup withdrew the proposal and decided to close the island’s second-biggest bank, Laiki, and seize a 47.5 per cent of uninsured deposits (over €100,000) in the Bank of Cyprus.

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