BRITISH customers with failed lender Laiki will be spared the Cypriot government’s losses on large savers, following a deal brokered by the Treasury and the UK’s new financial regulator yesterday.
Laiki’s 15,000 account holders at its UK branches will have around £270m of deposits moved to the UK subsidiary of Bank of Cyprus, and in the process escape the haircuts and restrictions in place for customers on the Mediterranean island.
Chancellor George Osborne said his office was involved in discussions with the Cypriot authorities ahead of the introduction of new laws in Cyprus to allow the transfer of the accounts in the UK, following Laiki’s collapse two weeks ago.
“There has been no material recourse to public funds,” he said in a letter to the Treasury Select Committee. “I promised a solution that would stop depositors here from being sucked into that restructuring process.”
The Bank of England’s prudential regulation authority (PRA), on its first official day of operation, also gave the arrangement the green light, as did the Central Bank of Cyprus.
Bank of Cyprus UK said it will try to honour the terms of the accounts, but it has cancelled overdraft facilities.
The swift deal contrasts with the UK’s protracted battle with Icelandic lender Landsbanki, which refused to hand back British and Dutch deposits after its collapse in 2008.
Cyprus yesterday started to ease the controls on cash in the country, which were put in place while it agreed a €10bn bailout. Officials said it could take up to a month to lift all the restrictions. The country will get its first bailout cash in May.
Q and A: WHY ARE LAIKI’S BRITISH ACCOUNTS SAFE FROM THE CYPRUS HAIRCUT?
Q What happened yesterday?
A Around 15,000 account holders with Laiki (also known as Cyprus Popular Bank) in the UK have been spared losses of up to 60 per cent that will hit their peers in Cyprus as part of the country’s bailout. Bank of Cyprus UK will take on the accounts, worth around £270m, without imposing any haircuts.
Q If both banks are in Cyprus, why are they protected in Britain?
A Laiki Bank is indeed a Cypriot lender, and its four UK branches are regulated as such. If Laiki wasn’t being wound up, its customers would probably be hammered. But Bank of Cyprus UK is, confusingly, a British bank, and its takeover of Laiki’s UK accounts means they are covered by British banking rights including our £85,000 deposit guarantee scheme.
Q What about customers with more than that?
A It appears that they will also keep their money during the transfer, as long as Cypriot and British authorities stick to the agreement – a reasonable bet, given it was agreed between top government and regulatory types.
Q That’s very generous of us, isn’t it?
A It’s not costing Britain money, according to the chancellor. It is just that the Cyprus authorities have agreed not to impose losses on customers based in the UK, even though domestic ones will lose out. The rules haven’t otherwise changed for UK banks.