Landon Thomas and Jack Ewing of Dealbook have happened across a delicious leak of ECB council minutes, running from May 2012 to January 2013.
Here’s the ECB’s response:
The E.C.B. neither provides nor approves emergency liquidity assistance. It is the national central bank, in this case the Central Bank of Cyprus, that provides E.L.A. to an institution that it judges to be solvent at its own risks and under its own terms and conditions.
In this specific case, there was full consensus in the governing council on the need to get assurances from the Central Bank of Cyprus that this bank was solvent. The solvency was confirmed explicitly by the Central Bank of Cyprus, which also confirmed the proper valuation of collateral after an intense dialogue between it and the E.C.B.
The E.C.B. was not the supervisor and fully relied on the assessment of the Central Bank of Cyprus. Therefore to draw conclusions about the E.C.B.’s future banking supervision role on the basis of E.L.A. to Cyprus is tendentious.
Easy to forget now that the crisis-spotters have moved on to EM from the eurozone… but we’re almost coming to the first anniversary of the Cypriot bank depositor bail-in.
Of course, that time has sure flown by. The Bundesbank isn’t even shy about proposing wealth taxes in similar crises any more. But it’s also worth thinking about, given that recapitalisation (and thus, risk in different parts of a bank’s capital structure) is still very much a theme in European bank investing.
Plus, though ordinary Cypriots are still angry about the implosion of the country’s two biggest banks, in that last year or so the country’s economy has probably contracted by less than the double-digit decline expect. Exchange controls and the deposit freeze at Bank of Cyprus have also been (very gradually) lifted over time.
Which is why it’s interesting to look at a trade recently in a Cypriot bank which didn’t see investors get bailed in: Hellenic Bank. Read more
FT Alphaville began writing in detail about emergency liquidity assistance in the eurozone — that is, national central banks lending to stricken, but supposedly solvent banks on highly secretive terms, against collateral not accepted at the ECB — some two and a half years ago.
Throughout that period, the ECB’s precise oversight of this liquidity assistance remained in the dark. Despite the risk being taken by taxpayers, and despite the fact ELA effectively stopped the Greek, Irish and Cypriot banking systems from going under at various points. And despite procedures having been in place since 1999 for the ECB to restrict ELA by a national central bank if it endangers the rules of the euro (as used in Cyprus). Read more
Sign of the times perhaps, though in any case easy to overlook (as we did)…
That’s a box on “one-off capital levies” — or wealth taxes — burrowed away on page 49 of the IMF’s latest Fiscal Monitor. Click to enlarge. Hat-tip to Societe Generale’s rates strategists.
Just in case you thought the Cypriot precedent had been forgotten. Read more
Q. How do you approach a sleeping depositor in a Cypriot bank?
A. Very slowly: Read more
Yes, it’s time for a trip back into those Cypriot debt contracts.
Cyprus announced the results of its sovereign debt restructuring on some €1bn of domestic-law bonds earlier this week. The one the Troika wanted for — OH. Oopsy-daisy. Did FT Alphaville say sovereign restructuring. We meant “debt management operation”. Read more
The International Monetary Fund’s “ex post evaluation” of its involvement in the Greek bailout continues to generate debate over the weaknesses revealed. Gabriel Sterne, a senior economist at Exotix with two decades of public sector experience including at the IMF, argues that the issues for the fund go much deeper.
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Quite a lot to ponder really. Members of the IMF’s executive board were set to meet on Wednesday to discuss whether to approve lending to Cyprus, more or less behind closed doors.
But maybe not so much this time. It looks like Stockwatch in Cyprus has obtained a copy of the members’ comments on the Cypriot bailout — a rather high-level internal document to find its way to the public… and it makes for fascinating reading. Read more
Still time (at pixel) to listen to Eurogroup chief Jeroen Dijsselbloem defend the Cyprus bailout in front of some unimpressed European MPs on Tuesday. Click the pic for the feed. (Or here) Read more
Compare (Reuters, March 25):
“It was made clear to our Latvian friends that if they want to join the euro, they should not provide a haven for Russian money exiting Cyprus,” a euro zone central banker said.
Contrast (Mr Kristaps Zakulis — financial regulator, Riga, April 24): Read more
There’s been some thought-provoking revisionism floating around about Cyprus lately.
The gist seems to be this: Why not push bank bail-in policy in the eurozone much harder, right into uninsured depositors if need be, if Cyprus has not (yet?) budged most gauges of bank funding from their current calm. And more importantly, when there is a vicious circle to resolve. Read more
Click to enlarge. Hat-tip to the FT’s Kerin Hope and Sigma TV:
Please note the question-mark.
Our colleagues at FT Brussels Blog got their hands on the draft debt sustainability analysis for the Cyprus bailout and bail-in — click for the full doc: Read more
In continental Europe, we are witnessing the rather extreme outcome that results from having the provision of liquidity divorced from an ability to regulate banks…
– UBS analysts John Paul Crutchley and Alastair Ryan, 2009 Read more
Cyprus may not be a template but as Pawel Morski said, the actual template is probably not going to look all that different.
We’ve already written a little bit about this and on Thursday Barclays published a note suggesting the Cyprus mess, plus the incoming common resolution framework, might wipe €15bn annually from the profits of Europe’s biggest banks. The draft of said framework is scheduled to come into play by 2015 with the bail-in tool, which had been delayed until 2018, perhaps being moved forward. We await clarity from European legislators this summer
, if the summer ever arrives.
Concerning Barclays’ €15bn figure, it’s made up of a few different, but connected, elements. Read more
The ‘Cypriot precedent’ and experiment with capital controls, a first for the eurozone, are still reverberating around the EU. Gilles Thieffry, a Partner at GTLaw, Geneva, writes on possible legal implications.
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The public, as well as most of the financial commentariat space, seem mostly to be behind the amended terms and conditions to Cyprus’ Eurogroup bailout, believing them to be fairer for most concerned.
Unlike the original proposal, the new terms do, for example, discriminate between good and bad banks — lessening the burden on those invested in better banks. They spare insured depositors below €100,000. And they require greater participation from other uninsured parties and equity holders in those banks deemed particularly bad. Read more
The following is a guest post from Chris Cook, a senior research fellow at the Institute for Security and Resilience Studies at University College London. His work is focused on a new generation of networked markets – which will, in Chris’s view, necessarily be dis-intermediated, open, decentralised and, therefore, resilient.
The second attempt to resolve the unsustainable debt burden of Cyprus’s over-leveraged banks spreads the pain differently to the disastrous initial attempt, but looks likely to leave Cyprus as an economic wasteland for generations. Frances Coppola outlined brilliantly yesterday the sort of financial disaster zone which Cypriots can expect. Read more
Tonight’s extra dollop of mind-bleach, fresh from the Eurogroup. Read more
…and it’s really about time it cost you your job.**
The Eurogroup head was in triumphalist form on Monday, claiming direct credit for having sent Cyprus into a parallel eurozone (capital controls, economy obliterated). Clock the direct quotes in this interview with the FT’s Peter Spiegel and Reuters’ Luke Baker: Read more
Monday morning’s Eurogroup statement on Cyprus. You’ll want the details in the Annex.
This is being reported as the capital control bill that’s close to being enacted in Cyprus (Greek speakers do please step in if needed) and a very welcome translated list courtesy of Yiannis Mouzakis: Read more
Kinda strange that markets should get all a-jitter just as the Cyprus crisis is moving towards a resolution.
Simon Derrick of BNY Mellon asked on Friday: “The red pill or the blue pill.” The answer — choose reality — seems pretty obvious, but let’s first run through Derrick’s handy re-cap…
What’s the problem?
That’s Panicos Demetriades, Cypriot central bank governor, on national TV just a few moments ago. And there’s a Laiki banker next to him. He looks a bit unwell. Demetriades announced a “banking reform” bill that will guarantee deposits up to €100k, and put Laiki into resolution. Otherwise this bank’s a goner. Update – the only way this works, surely, is if uninsured large depositors are shoved to the bad bank and are left to try their luck on asset recovery.
OK, Felix already posted on this earlier. But in case you haven’t read Lee Buchheit and Mitu Gulati’s 3-page paper on Cyprus yet, we’d recommend reading it, or going back to it, given the likelihood of uninsured depositor flight whatever plan is now adopted.
We’re waiting for Plan B on Thursday. Meanwhile, various, erratic Hail Marys — Hail Vladimirs — were not looking good as Plan Bs as Wednesday closed. Read more
From the ECB on Thursday morning:
GOVERNING COUNCIL DECISION ON EMERGENCY LIQUIDITY ASSISTANCE REQUESTED BY THE CENTRAL BANK OF CYPRUS
The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013.
Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.
After that resounding no vote, what’s in the stars for Cyprus today?
Martina Stevis and Michalis Persianis write in the WSJ that there are short term ideas — basically, Cypriot and European officials are discussing capital controls for when banks are due to open next Tuesday.
Meanwhile the IMF is coming up with a plan to merge Cyprus’ two biggest banks into a ‘bad bank’, a source told the pair. The IMF wouldn’t be drawn on that.
Where does the ECB stand in all this? Read more
That’s the result of Cypriot MPs’ vote on the current version of the bank deposit levy, rejecting it as a condition of the island’s bailout. Note that the ruling party abstained. Still, that is the first no, after all these years and the bailouts, to the Troika. Read more
To be perfectly honest, trying to second-guess Cyprus isn’t gonnna get us anywhere. The situation at pixel time was moving too fast at too great a distance. While we wait for a tiny bit of clarity — whether this evening’s vote on the bailout will go ahead is till unclear, let alone what the outcome will be — a question being asked by Credit Suisse’s William Porter and team seems apropos: What if they’re not “stupid”? Read more