The Cyprus House of Representatives voted on Thursday night a law providing for the resolution authority on banks to expand to include the Ministry of Finance, the Central Bank of Cyprus, as well as the Securities and Exchange Commission, CySEC, thus ending the absolute power of Central Bank on bank resolution.
Under its new composition, the authority will take decisions by simple majority. The plenary session decided with 35 votes in favor and 17 abstentions, while there were no votes against. The ruling Democratic Rally (DISY), the Socialists (EDEK), the Green Party and Citizens Alliance vote in favor, while the communist AKEL and the European Party abstained from voting.
Earlier this week Central Bank Governor Panicos Demetriades pointed out that new members in the resolution authority will complicate decision-making and said he will not participate in the authority under a broader composition.
The House Plenary will meet again on Monday, September 9, to vote on a series of bills and draft regulations, approved this week by the Cabinet in order to establish the legislative framework for the updated Memorandum of Understanding with the Troika of international lenders for the financial sector. The measures must be passed before September 11 when the Eurogroup will convene and release the next tranche of bailout funds for Cyprus
Excluded from international capital markets since April 2011, Cyprus applied for financial assistance from the EU bailout mechanism, as its two largest banks, Bank of Cyprus (BoCY) and Cyprus Popular Bank (Laiki) requested state support following mammoth losses as a result of the Greek sovereign debt haircut.
In late March this year, the Cypriot authorities and the Troika (European Commission, European Central Bank and the IMF) agreed on a €10 billion financial assistance package which provided for a haircut on uninsured deposits at the BoCY and Laiki. Laiki has been wound down and merged with BoCY. Capital controls have been imposed on the island’s banking sector following the agreement.
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