Cypriots woke yesterday to find banks under lockdown for an 11th day after authorities reversed course and kept them closed to prevent a run on deposits following the island’s bailout.
All lenders except the debt-hit Bank of Cyprus and Laiki Bank had been due to open yesterday, but the central bank made an unexpected announcement overnight saying they would now all remain shut until tomorrow.
It was a fresh blow for the punch-drunk east Mediterranean island after days in which Cypriots have lined up at ATMs doling out dwindling amounts of cash and been unable to carry out over-the-counter transactions.
Cypriot Finance Minister Michalis Sarris made the decision to keep the banks closed on the recommendation of central bank Governor Panicos Demetriades in order to “ensure the smooth functioning of the entire banking system.”
There have been fears that the banks could be drained of cash when they reopen as frightened investors try to withdraw their deposits.
Cypriot President Nicos Anastasiades, meanwhile, said in a televised address to the nation that Cypriots would face further capital controls, without specifying what they were.
“This is a very temporary measure, which will gradually be relaxed. I can assure that we will do everything possible to return soon to complete normality,” he said.
Cyprus secured a last-minute deal in Brussels in the early hours of Monday for a 10 billion euros (US$13 billion) bailout that helped it avert bankruptcy and avoid crashing out of the single currency.
The deal involves depositors in the two biggest banks — many of them Russian — paying huge levies on deposits of more than 100,000 euros. It also effectively shuts down Laiki, the country’s second-largest lender, also known as Popular Bank.
Asian markets mostly fell yesterday after a top eurozone official suggested a levy on bank deposits used as part of the Cyprus bailout could be a template for future rescues in the troubled region.
Dutch Finance Minister Jeroen Dijsselbloem, who heads the eurogroup of finance ministers, said the costs of bank recapitalizations should not fall on the public sector, but on bondholders, shareholders and, if necessary, uninsured deposit holders.
His statement sent the euro tumbling to a four-month low in London.
The comments to the Financial Times — that raise the prospect of a similar policy for bailouts in other nations — also hit US and European shares, which had been in positive territory following Sunday night’s agreement.
Tokyo lost 0.6 percent, or 74.84 points, to 12,471.62 and Sydney slipped 0.8 percent, or 40 points, to 4,950.2, but Seoul climbed 0.3 percent, or 6.03 points, to 1,983.7.
“Cyprus has touched the nerves of a lot of people. I guess the question is who will be next and what pressure such a deal will have on the ability of Cyprus to trade out of their issues,” said Jonathan Barratt, chief executive at Barratt’s Bulletin in Sydney. “It raises a lot of questions about what is next for them and what other nations within the EU will be subject to if they have a debt crisis.”
Dijsselbloem later released a statement via Twitter saying Cyprus was a “specific” case.
“Mr Dijsselbloem later revised his comments, which will take some of the sting out of the fallout on equities prices,” SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires.
Those comments helped the euro in New York claw back some of the losses that saw it hit a four-month low of US$1.2830 in London, while it also picked up against the yen.
In Tokyo trade, the single currency fetched US$1.2874 and ￥121.31, compared with US$1.2853 and ￥120.96 late on Monday in New York.