All but two of the island's largest banks were scheduled to open again today, but the island's Central Bank moved to head off the threat of a run, as savers fear for the future of their balances. Under the €10 billion international bailout agreement agreed yesterday, large depositors at the troubled banks are likely to bear the brunt as Cyprus looks to raise the necessary funds and slash the size of its banking sector.
Asked whether the banks will reopen, as now planned, on Thursday, finance minister Michalis Sarris replied with confidence: "Yes, they will."
Under a radical departure from previous Eurozone bailouts, savers at the Laiki Banks face the prospect of losing all deposits above €100,000, while major savers at the Bank of Cyprus also expect to take a hit as their banks are forced to recapitalise.
ATMs have been working throughout the closure, but many have quickly run out of money. The two largest banks, Bank of Cyprus and Laiki, have imposed a daily withdrawal limit of €100. Many businesses are no longer accepting credit or cheques, insisting on cash only.
Unsurprisingly, shops are reporting a sharp decline in trade, with customers unwilling to spend on anything but the basics while they have limited access to cash. Businesses, many of which have been unable to pay suppliers or fulfil orders, have felt the impact acutely.
"The continuation of this uncertainty is pushing the economy deeper into recession, some businesses could possibly lose their clients, but we're hopeful once this situation is sorted out, the market can rebound quickly," said Michalis Pilikos, head of the Cyprus Employers and Industrialists Federation.
Scores of angry students from a left-wing student union gathered outside Parliament, screaming: "People, fight back, they're sucking your blood."
The Laiki bank will be dissolved immediately into a so-called "bad bank" containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.
Deposits at Bank of Cyprus above €100,000 will be frozen until it becomes clear whether or to what extent they will also be forced to take losses. Those funds will eventually be converted into bank shares.
It's not yet clear how severe the losses will be to Laiki's large bank deposit holders, but the euro finance ministers noted the restructure expected to yield €4.2 billion overall. Analysts have estimated investors might lose up to 40 per cent of their money.
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