The bank deposit guarantee fund has met the target of raising €120 million, a finance ministry representative told lawmakers on Monday.
Members of the House finance committee, which discussed Cyprus’ harmonisation with the European Union’s Bank Recover and Resolution Directive (BRRD), were informed that the fund to protect insured depositors – up to €100,000 – through contributions by banks on their insured deposits has met its 0.8 per cent target.
A separate deposit-guarantee fund has been created for the co-operative group.
Total deposits under €100,000 in Cypriot banks are currently €24 billion.
The directive also calls for the creation of a second fund, designed to facilitate the orderly resolution of banks or investment firms – the target for which has been set at 1 per cent of total insured deposits by 2024.
According to finance ministry and central bank officials, when a bank is found to be in distress the BRRD is triggered, and if the measures to save the institution fail, it is placed in resolution, which in turn triggers the deposit-guarantee fund.
If the fund fails to cover total deposits guaranteed at the troubled institution, it has the option of borrowing from other similar funds, levying a tax on other banks, and, as a last resort, taking the matter up with the council of ministers for a bailout by the state.
However, according to the BRRD, before the fund takes any action, at least 8 per cent of the required cash must come from a bail-in, or haircut, on creditors’ holdings – in this order: shareholders, bondholders, uninsured depositors.
“We regulate haircuts in order to protect the taxpayer,” acting committee chairman Angelos Votsis said after the meeting.
The six bills regulating the failure of a financial firm cover banks and investment firms.
According to Votsis, they will be put to a vote at Thursday’s plenum.
“There was great pressure on the committee to approve the bills, since the European Commission had launched a reasoned-opinion procedure against Cyprus, while the finance ministry had asked for a vote on the six bills this Thursday,” he said.
Cyprus should have harmonised its legislation with the European directive by mid-2015.