BRUSSELS/NICOSIA – Cyprus reached a last-ditch deal with international lenders on a €10 billion ($13 billion) rescue plan to avoid economic meltdown, agreeing to close down its second-largest bank and inflict heavy losses on big depositors. The agreement came hours before a deadline to avert a collapse of the banking system in fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund. Without a deal, Cyprus's banking system would have collapsed and the country could have become the first to crash out of the European single currency. Backed by euro zone finance ministers, the plan will spare the Mediterranean island a financial catastrophe by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below €100,000 to the Bank of Cyprus to create a “good bank”. Deposits above €100,000 in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalize Bank of Cyprus, the island's biggest, through a deposit/equity conversion. The raid on uninsured Laiki depositors is expected to raise €4.2 billion, Eurogroup chairman Jeroen Dijssebloem said. Most Cyprus banks will reopen today (Tuesday) but the Bank of Cyprus and Popular Bank will reopen Thursday, a Central Bank source said. “All banks with the exception of Popular and Bank of Cyprus will reopen on Tuesday,” the Central Bank source said Monday. Popular and Bank of Cyprus would re-open on March 28 and restrictions of a €100 ($130)-per-day withdrawal limit from cashpoints, introduced on Sunday, would remain in force until then, the source added. Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution. An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits. – Reuters
