THE TREASURY is trying to stop the UK branches of troubled Cypriot banks from being affected by the island state’s financial woes, the chancellor revealed yesterday.
George Osborne told MPs he wants to “avoid the branches in the UK being sucked into the Cypriot resolution process”.
The biggest two banks in the country are being reorganised to prevent a collapse. The Popular Bank of Cyprus, or Laiki, is being wound down with its impaired assets moved into a new bad bank and its depositors wrapped up with the largest lender, the Bank of Cyprus.
Uninsured depositors – those with more than €100,000 (£84,834) in Cyprus will lose over 30 per cent of their deposits to recapitalise the bank, while insured depositors will be protected.
The Bank of Cyprus has a subsidiary in the UK which is covered by the British financial services compensation scheme. But Laiki only has branches here, meaning those depositors must rely on the word of the Cypriot authorities. Laiki’s branches in Greece are being sold at a knock-down price to Greek bank Piraeus, and Osborne is trying to work on a deal for the UK branches that will be acceptable to the governments and depositors.
“We will make it clear to the Cypriots when mistakes are being made – it was a mistake to propose bailing in insured depositors,” he told the Treasury Select Committee. “But we are there to resolve the situation. In the end developments in the Eurozone has a very direct impact on the UK’s economy.”
Meanwhile the chancellor revealed the government has flown an extra €13m in cash to Cyprus to provide funds for soldiers and civil servants on the island. He also told MPs he has offered pensioners new accounts with UK banks to get around the access problem, as the country’s lenders have been closed for 12 days so far.