Cyprus has come to an agreement with the European Union and the International Monetary Fund (IMF) for a €10bn bailout in an attempt to avoid the collapse of its banking sector and the impact that would have on the wider economy. The agreement has resulted in banks in Cyprus re-opening after a two week closure. Despite initial concerns that there would be a rush to withdraw deposits, bank branches have remained relatively calm.
The terms of the bailout agreement require a significant restructuring of the Cypriot banking sector and put in place various other measures, including increases to taxes and privatizations. Cyprus’s second largest bank, “Laiki Bank,” will be forced to shut down, and all deposits over €100,000 will be moved into a “bad bank.” Deposits under €100,000 will be moved to Cyprus’s largest bank, the “Bank of Cyprus,” which will also be subject to restructuring. Amounts over €100,000 deposited at either bank will be converted into bank shares or “bailed in.”