In an interview with the weekly “Mahi” newspaper, Georgiades said that the government has taken bold decisions because it was imperative to safeguard the cooperative sector as an institution. A review by global bond manager Pimco to assess the impact on the Cyprus banking sector, showed a deficit of 1.5 bln euros in the cooperative sector’s regulatory capital, which could not be met, Georgiades said, adding that the government’s goal is to avoid a new ‘haircut’ on deposits and to secure this sum from Troika funding so that the cooperative sector can be recapitalised and the institution safeguarded.

Unsecured deposits above 100,000 euros were confiscated and used to partly recapitalise the island’s biggest lender, Bank of Cyprus, as part of an international bailout to rescue the island’s economy and savers at Coops have since feared a similar bail-in package on their deposits. The Minister said that “important changes” will be made in relation to the regulation, operation and structure of the Cooperative sector. Already, the number of Coop banks will be reduced to a quarter of what they are today.

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 and Popular Laiki Bank, requested state support following mammoth losses as a result of the Greek sovereign debt haircut and the inability of a bankrupt state to support the banking sector. In late March this year, the Cypriot authorities and the Troika (European Commission, European Central Bank and the IMF) agreed on a 10 bln euro financial assistance package which provided for a haircut on uninsured deposits at the BoCY and Laiki. Laiki is being wound down and merged with BoCY.

Capital controls have been imposed on the island’s banking sector following the agreement causing havoc to the services-based economy.

Source: Financial Mirror