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Originally published Thursday, March 28, 2013 at 7:38 PM

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Cyprus banks reopen — with withdrawal limits

Cyprus, fearing a run on its banks, has imposed daily withdrawal limits of $384 for individuals and about $6,400 for businesses, the first so-called capital controls any country has applied in the eurozone’s 14-year history

The Associated Press

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NICOSIA, Cyprus — Cypriots patiently waited in long lines to get at their accounts Thursday when banks opened for the first time in nearly two weeks, after an international bailout to save the country’s financial system.

Fearing a run on its banks, the tiny Mediterranean country has imposed daily withdrawal limits of $384 for individuals and about $6,400 for businesses, the first so-called capital controls any country has applied in the eurozone’s 14-year history.

Financial strains are building on families and businesses, and the recession in Cyprus is likely to deepen. The mood outside banks was calmer than expected. Many people said the withdrawal limits were probably necessary to keep a bad situation from spiraling out of control.

Flower-shop owner Christos Papamichael was among some 30 people waiting patiently for bank doors to open at noon Thursday. “Everything has been paralyzed ... No one thinks of buying flowers,” he said.

Banks had been shut in Cyprus since March 16 to prevent people from draining their accounts as politicians scrambled to save the country’s stricken financial sector. ATMs were working, but with a limit on daily withdrawals.

An initial plan to seize up to 10 percent of all Cypriot deposits caused an international uproar and was scrapped. But to secure nearly $13 billion in loans from other euro countries and the International Monetary Fund, Cyprus agreed Monday to wind down its second-largest bank and seize billions from accounts holding more than the insured limit of about $130,000.

Government and bank officials had feared that up to 10 percent of the country’s deposits could be siphoned off when banks opened Thursday. Guards from private security firms reinforced police outside some ATMs and banks in the capital, Nicosia. No problems controlling crowds were reported.

The limits on withdrawals and other capital controls are expected to be relaxed gradually. Analysts say it’s anyone’s guess how people and businesses will react once that happens.

Foreign Minister Ioannis Kasoulides said that, according to central-bank estimates, the controls would be fully lifted in a month. Some analysts say it could last longer.

President Nicos Anastasiades expressed in a statement his “warm gratitude and deep appreciation toward the Cypriot people for the maturity and spirit of responsibility they have shown at a critical time for the stability of the Cypriot economy.”

However, many Cypriots were left frustrated and confused by the closures and controls and concerned about the effect on their businesses and livelihoods.

“No matter how much information there was, things were changing all the time,” said Costas Kyprianides, a grocery supplier in Nicosia.

For years, the banking sector has been the lifeblood of the Cypriot economy, attracting money from across Europe — and especially Russia — thanks to high interest rates and loose regulation. The country’s deposits ballooned to more than seven times its economic output. But Cypriot banks ran into trouble after taking massive losses on Greek government bonds.

Now, the country’s second-largest bank, Laiki, is to be split up, with its healthy assets being absorbed into the Bank of Cyprus. Savers with more than about $130,000 in either Bank of Cyprus and Laiki will face big losses. At Laiki, those could reach as much as 80 percent of amounts above the insured limit; those at Bank of Cyprus are expected to be much lower.

As part of the country’s capital controls, no checks can be cashed, although they can be deposited. Anyone leaving the country, whether Cypriot or a visitor, can only take up to $1,290 in cash.

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