Cyprus: National Bank Holiday, 2013

The Greek government debt crisis was especially hard on the two largest Cypriot banks. Bank of Cyprus (BoC) and Laiki Bank lost EUR 1.8 billion and EUR 2.3 billion, respectively, on their Greek government bonds after the European Union (EU) decision in October 2011 to haircut the bonds. Over the next year, Laiki Bank faced severe liquidity problems from depositor withdrawals, the Central Bank of Cyprus (CBC) extended to it significant emergency liquidity assistance, and the government owned 84% of the bank after injecting EUR 1.8 billion. The Cypriot economy also suffered negative effects and in March 2013, authorities negotiated a EUR 10 billion economic adjustment program with the EU, European Central Bank, and International Monetary Fund (together the "troika") that required authorities to stabilize the two stressed banks without troika funds. Early on Saturday, March 16, the Cypriot government and the Eurogroup, the finance ministers of EU member states using the euro, announced a plan for troika aid that included a one-time tax on all Cypriot bank deposits, although overseas branches of Cypriot banks were excluded. The authorities anticipated depositors would run. While commercial bank branches are closed on Saturdays, the authorities shut down electronic transfers to prevent electronic runs. However, they left ATMs open. After the announcement, depositors emptied ATMs and ran on cooperative banks, which are typically open on Saturdays; the cooperative banks subsequently closed. When the parliament rejected the bank-levy plan on Monday, March 18, a national holiday, the CBC imposed a bank holiday that ultimately lasted 10 days. During the bank holiday, authorities and the troika agreed on a new plan for the banks: Laiki Bank would be resolved, and BoC would be restructured. Uninsured depositors in both banks would take losses. Cyprus put in place capital controls and deposit withdrawal restrictions at the end of the bank holiday to avoid excessive liquidity flight. The capital controls were revised multiple times, cash withdrawal restrictions ended in March 2014, and controls were completely removed in April 2015. Uninsured depositors of the two troubled banks were frozen and ultimately bailed in.