‘Cyprus bailout shows banks can be wound down’

People gather in front of Laiki (Popula) Bank in Nicosia, Cyprus last month. Picture: Getty
People gather in front of Laiki (Popula) Bank in Nicosia, Cyprus last month. Picture: Getty
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THE Cyprus bailout shows banks can be wound down despite difficulties, European Central Bank (ECB) policymaker Jens Weidmann said yesterday.

Weidmann, chief of Germany’s Bundesbank, told Deutschlandfunk radio he wouldn’t rule out that Cyprus might need yet more liquidity, but stressed it was longer-term structural reforms that would solve Nicosia’s problems and not more cash.

To secure a €10 billion (£8.5bn) bailout last month from the European Union (EU) and the International Monetary Fund (IMF), Cyprus forced heavy losses on wealthier depositors.

Initially, it had also pledged to introduce a levy on deposits of less than €100,000 before reneging in the face of protests.

The agreement also included the winding down of the island’s second-largest bank, Cyprus Popular Bank.

Cyprus’s bailout was not a template, Weidmann said, due to the large size of its financial sector, although it was crucial that those who bore responsibility for getting banks into trouble bore some liability.

“It is important to draw the lesson from Cyprus – that banks can be wound up, despite all the difficulties along the way in working out the programme. This is a positive signal, and should help limit uncertainty,” he said.

Weidmann cited discussions at European level on a directive for dealing with failed banks. “We can’t always rescue banks that have got into difficulties with taxpayers’ money,” he said.

“It is about winding down banks in such a way that it doesn’t endanger the financial system.”