ECB: Cyprus is proof banks can be wound down

 
City A.M. Reporter
THE Cyprus bailout shows banks can be wound down despite difficulties, European Central Bank (ECB) policymaker Jens Weidmann said in an interview broadcast yesterday, adding the situation on the island had stabilised.

Weidmann, chief of Germany’s Bundesbank, told Deutschlandfunk radio he wouldn’t rule out that Cyprus might need yet more liquidity, but stressed it was longer term structural reforms that would solve Nicosia’s problems and not more cash.

To secure a €10bn EU and IMF bailout last month, Cyprus forced heavy losses on wealthier depositors.

The agreement also includes the winding down of the island's second-largest bank Cyprus Popular Bank.

Cyprus’ bailout was not a template, Weidmann said, due to the large size of its financial sector, although it was crucial that those who bore responsibility for getting banks into trouble bore some liability.

“It is important to draw the lesson from Cyprus that banks can be wound up, despite all the difficulties along the way in working out the programme. This is a positive signal, and should help limit uncertainty,” he said.