Cyprus Crisis: Banks Shut Until Thursday

The closure of Cypriot banks has been extended until Thursday, despite the bailout deal with Brussels to avert the nation going bankrupt.

Depositors had been told that banks, with the exception of the two biggest lenders Bank of Cyprus (BoC) and Laiki, would re-open on Tuesday.

But a decision was taken by the Cypriot central bank overnight to keep all branches closed while officials completed the restructuring of the biggest banks and introduced wider capital controls to prevent a possible run on deposits.

The chairman of the BoC later resigned in protest at the bailout condition that it would have to absorb Laiki's debts.

The 10bn euro (£8.5bn) rescue was secured when politicians agreed to seize cash from bank depositors with more than 100,000 euros in their accounts.

It amounted to a hit of up to 40% on the money held by such people banking with BoC and Laiki, finance minister Michalis Sarris told BBC radio, cash that will be swapped for shares in the lenders.

Unemployment and poverty levels are expected to soar in Cyprus

The country's president had earlier assured his people the rescue package he struck with the EU and International Monetary Fund was in their best interests, despite the prospect of years of financial pain ahead.

Nicos Anastasiades agreed to close down Laiki as part of the demanded reforms of the Cypriot financial sector - brought to the brink of collapse by its investments in neighbouring Greece.

The capital controls, preventing people moving funds out of the country, could last for a number of weeks.

Cash machine withdrawals remain restricted while the branch shut-down is said to be hammering businesses, which have been without access to their funds for more than a week.

European leaders said a chaotic national bankruptcy that might have forced Cyprus from the euro and upset Europe's economy had been averted by the rescue - though investors in other European banks were alarmed by the precedent of losses for depositors in Cyprus.

The raid on uninsured Laiki depositors is expected to raise 4.2bn euros of the 5.8bn the EU and IMF had told Cyprus to raise as a contribution to the bailout, according to Dutch finance minister Jeroen Dijsselbloem.

The politician, who heads the so-called Eurogroup of finance ministers, also spoke of the need for lenders to banks to accept the potential risks of their failure in future - seen as support for using the Cypriot bailout model as a blueprint.

The comment - which has been widely criticised - had a knock-on effect by raising the cost of insuring holdings of bonds issued by other banks, notably in Italy and Spain. Global equity markets and the euro also retreated.

While Russia was angered that Russian depositors of Cypriot banks would suffer huge losses, President Vladimir Putin has ordered officials to restructure a loan Moscow granted to Cyprus in 2011.

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