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Cyprus takes emergency steps to prevent run on banks

By Catholic Online (NEWS CONSORTIUM)
March 22nd, 2013
Catholic Online (www.catholic.org)

The island nation of Cyprus is making emergency efforts to restructure its second largest bank. It is also considering new rules to stop money from being taken out of accounts after the country's banks after they reopen next week after being closed for ten days.

LOS ANGELES, CA (Catholic Online) - Eurozone finance ministers held an unscheduled conference call at which they agreed to discuss a "plan B" for Cyprus. The Cypriot government submitted a bill to its parliament that could allow its finance minister or central bank governor to impose capital controls in cases of "public order or security."

Central Bank Governor Panicos Demetriades set out measures to restructure the second-largest bank, Laiki, and protect savers with deposits up to 100,000.

"By establishing this legal framework, resolution measures will be imposed on Popular Bank (Laiki) so that it will be in a position to continue to offer banking services to its clients next Tuesday," when banks are due to reopen, Demetriades said.

Cyprus appears to wants to create an "investment solidarity fund" to raise fresh cash to help fund its 17 billion bailout, which is the same size of its economy. Cyprus is weighed down by a banking sector eight times the size of the economy, containing up to $19 billion of deposits from wealthy Russians.

The European Central Bank warned that it would halt all emergency funding to the country's collapsing banks unless a 17 billion bailout deal was agreed with Nicosia's eurozone creditors by Monday.

The threat of the ECB withdrawing support appeared to worsen the situation in Cyprus, where lines formed at ATMs in spite of government efforts to dispel what officials quickly described as "groundless rumor" about over what the rescue package would entail.

Laiki announced that it had scaled back withdrawals to 260 a day, from 800. Spokeswoman Aliki Sylianou was forced to deny widespread reports it had been closed. Cypriots were not convinced as witness to the huge lines forming outside local Laiki branches.

In the Cyprus capital of Nicosia, Cypriots lined up for hours in the hope of withdrawing cash with lines frequently moving at a snail's pace because of the inability of cash machines to dispense more than 40 at a time.

"I've had to use my card ten times to get 400," said one customer exclaimed, stuffing wads of bills into the pockets of her jeans before Laiki announced the 260 euro limit late on Thursday. "I'm entitled to withdraw 800 a day. It's disgusting that I'm unable to access my own money."

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