A Cypriot Icesave coming up – and winding up Laiki Bank – updated
As Icelog has pointed out earlier, there are many similarities between Iceland and Cyprus. One of them is Icesave.
If Laiki Bank, a badly hit Cypriot bank, folds it will leave some depositors in the UK under a Cypriot Deposit Guarantee Scheme because Laiki, apparently, has branches in the UK, not subsidiaries. As Landsbanki’s Icesave accounts, set up as a branch, showed so clearly these depositors will have to seek to Cyprus for their deposit guarantees. If Laiki operations in the UK had been in a subsidiary it would fall under the UK DGS.
Ever since Icesave the UK Financial Services Authorities have had their eye on branches. But they seem to have reacted somewhat slowly – Icesave collapsed over four years ago, in October 2008. Yet another failure on part of the FSA.
The lesson from Iceland is that if Laiki folds it is very important that insured deposits are moved into a new entity (for which funds are needed) and the rest left to a resolution company. (In Iceland, all deposits were insured, no minimum).
What Iceland did – which has proved very beneficial to uninsured deposits (which were the deposits abroad) – is that in the Emergency Bill (passed into law just as everything was collapsing October 6 2008) deposits were made a priority claims in bankruptcy. This meant that uninsured depositors get paid first, i.e. have hope of getting something back.
This was relevant not in Iceland but in the Icesave branches in the UK and the Netherlands because these deposits were then given priority and will actually get fully reimbursed. But alas, one’s gain is another’s loss – it means that other creditors to Landsbanki’s foreign operations aren’t getting very much.
What happened in Icesave was that the UK and the Dutch did reimburse depositors (to avoid unrest) but then wanted this money back from Iceland. Iceland resisted – and now in January the EFTA Court ruled that because it was a major systemic failure Iceland did not need to reimburse the two governments. (This is a hotly disputed outcome, the European Court of Justice might see it differently).
In a situation like in Iceland and Cyprus, someone will feel the pain. In Iceland, ordinary deposit holders lost 30-40% of their ISK deposits, measured in euro. Exiting the euro is no solution for Cyprus. With banks kept alive since January by the ECB’s Emergency Liquidity Assistance, the Cypriot catastrophe has been on the horizon for a while. It is a pity that it was not better prepared when the crash finally came.
But now it is here and something needs to be done. Iceland managed to do a few things right – helped by the fact that the there were foreign creditors that could be forced to take the greatest loss, ca 5-6 times the Icelandic GDP – painful though it was. It seems that the Cypriot shock might be greater, no clear cut group of foreign creditors who can be forced to swallow losses. Still, for Cyprus a quick stab might be better than the lingering pain the Greeks have lived with for far too long.
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What makes me sad here is that obviously nobody learned the lesson from the icelandic problems.
Chris
22 Mar 13 at 3:32 pm
Many thanks to autor for explaining situation which is somehow similar in Cyprus today.
Alboin
22 Mar 13 at 8:25 pm
Sigrún,
What is needed in the Cyprus situation is not a quick stab, it is a quick strike back, by Cyprus.
The Eurozone powers dictating to Cyprus in the present case are acting as servants to a commercial aristocracy ‘mafia’. They have made themselves and the commercial (financial) entities they are acting for legally vulnerable, because they have ordered, quite publicly, Cyprus, as a State, to violate the law of the EU. They have ordered Cyprus to shear depositors, who are specifically protected by a deliberately implemented, and recently reviewed and updated, Directive that specifically states its legal intention to be to protect depositors, and there through depositors’ confidence in the banks they deposit in.
Cyprus is today confronted with a choice, to stand upon principle, in defiance of the powers who order her, there through remaining in respect of the EU’s law, there through taking and standing on the moral high ground, or to agree to commit crime under the duress imposed by the commercial powers and interests who order her to.
The EU is lost in any case at this point, since no EU champion has come forward to condemn the demanded compromise of EU law and demand the law of the EU be upheld and respected. No system based upon law can live long with its law acquiescently manipulated. Thus, the Cyprus case has already killed the EU (or the EU killed itself when it condoned and allowed the illegal assault on depositors in Cypriot banks to be imposed, and then, instead of withdrawn, pressed).
To save herself and her banks and depositors Cyprus needs to withdraw, reluctantly and with misgivings, from the EU. She must to protect her banks’ depositors, and hold to the law, whether it hurts or not. She must introduce, or re-introduce, her own currency, to convert all deposits in her banks to. She should introduce her own currency at par with the Euro, and allow Euros to be used in domestic Cypriot exchanges, with the local currency given wherever possible in change, for the duration of change-over. She must impose immediate currency restrictions, however, to prevent capital flight. She should be able to receive instructions and help from Iceland, who has experience in such things.
Then Cyprus must do as Iceland did, but not as Iceland did it: She must close the old commercial banks and start new banks, state-owned, at least o begin. She must move the deposit of all depositors, foreign and domestic, over from the old banks to the new, keeping all amounts the same, but transferring at par to the new currency, placing all under her newly established currency controls, to keep all in Cyprus until stability returns. This way deposits may be maintained available, even if there is no actual new currency yet. Withdrawals will be possible, locally, in the new local currency, even if only in the form of promissory scrips. This will keep depositors’ deposited funds available for pay-outs, even if the new currency they’ve been converted to has naught but local value, and even little of that, even if less, eventually, upon establishment of exchange with other nations, when the new Cypriot currency will have whatever value market exchange will establish. The important point will be maintaining availability of depositors’ deposits, at some defined value, in Cyprus, where the depositors’ accounts will be, even if they have no recognized value off the island.
To bring the new currency up to value, and bring her banks’ depositors’ deposits back up to value, Cyprus will have to next file lawsuits, in European Courts of Justice, to begin, against all parties complicit in the attempt to force Cyprus to violate the EU’s law. The purpose will be to recover full value for Cyprus and all depositors to make up all losses and damages result of the defendants’ illegal actions and Cyprus’s assumption of a principled legal and moral stance against the violating.
The defendants in the suits should include all involved, or seemingly involved, at all removes. Sovereign nations and the peoples of sovereign nations should be excepted. But all EU agencies and ministries, ministers, politicians and advisors involved in the ordering to violate and in the attempt to coerce to violate the clear letter of EU law. All commercial entities, including the IMF and hedge-funds and all identifiable speculator investors. All who made attempt to grab a profit from the forcing of Cyprus to violate law. The defendants should include all persons, personal and legal, involved in any of the debt restructuring that damaged legitimately made and reasonable loans made by the old Cypriot banks to sour or fail. All need to be sued jointly and severally, so none may escape by shifting, side-stepping, shadowing, shell-gaming or disolving.
I would advise Cyprus to accompany the civil suits to recover losses with criminal actions in the international war-crimes tribunals, alleging the attempt to coerce violation of law to constitute economic war crime. Doing this would introduce a new idea, at least, and perhaps open some new ground. What is occurring today, not only in Europe, but around the world is a new form of warfare, fought by banks and moneyed interests, against sovereignties and peoples, with credit and currency manipulations the weapons, the purpose to coerce nations to sell assets belonging to the people away from them and the sovereign states they won, to global-corporations, into a few commercial-entity owner hands.
Because the EU law in regard to burning depositors is specific and clear and inarguably purposed, if Cyprus engages to protect its banks’ depositors, it cannot lose. Even if the depositors’ deposits become only numbers on papers, with little or no recoverable trade-exchange values, which they will certainly for a time, they will remain the depositors’ deposits, and will constantly carry a potential value deriving from the potential of the Cypriot recovery suit(s) against the wrong-doers who inarguably undertook to dismiss and disregard rule of law.
It is impossible to predict what Cyprus might win if it follows a moral high-ground course. It is, of course, predictable that times will be tough in Cyprus for at least some time, for up to the duration of the course of the case. But times are going to be tough in Cyprus for a while in any case.
And if Cyprus takes a stand against the wrong being done against her, and the wrong-being urged upon her, she will have many friends. The nations who, and whose peoples, value rule of law will side with Cyprus, as will nations and peoples who have resources the commercial elite may covet, who will recognize that as Cyprus, with her natural gas field potentials was next after Iceland, with her thermal energy, and petroleum deposit potentials, they may be next after Cyprus.
On the other hand, if Cyprus acquiesces and submits to the demands of the powerful gang of international gangsters who are ordering her, she will make herself a party in the violating of EU law. She will become one of the gang, or one the gang owns. Cyprus then will inevitably and indubitably lose, and will continue to lose. And she will have no recourse or remedy, in law or history.
R.L.Dogh
23 Mar 13 at 12:47 am
Thank you Sigrun for an illuminating blog and also thank you Mr Dogh for an extremely interesting and thought provoking article.
It is interesting to read your theory of what I might call global rape of the assets of the masses and of small sovereign states whilst abusing the laws already in place to protect such entities.
It appears that we have a global war without having to mobilise the armed forces. I believe we have every reason to fear for the future if this wholesale extortion is allowed to continue unchecked.
Nina Foster
23 Mar 13 at 8:10 am
Thanks Sigrun for this Blog explaining things so clearly.
I agree with R.L. Dough about Cyprus following a moral ground and standing up against this growing Financial Terrorism where Banks are the real tyrants and terrorists, whilst Politicians pretend otherwise and look the other way as they are cowards in the shadow of the looting and rape of ordinary decent people when money and power are at stake.
Europe has failed to protect people from the frauds, the mis-selling and abuse of the Banks because the financial Bandits are protected by the Politicians, the Judiciary and often the press who is told to play things down or to talk about the weather instead.
The USA should hang its head in shame as they have not brought any Banksers to account, but that does not mean Europe should be like Tony Blair and become America’s poodle by follow disastrously bad examples.
Iceland was the first to stand up and say NO to the Bankers getting away with crimes and letting the people pay for their greed and mismanagement.
Icelandic people have set a moral example to the USA and to Europe. Cyprus should look closely at what they have done as in the end , these are the countries the people of the world will respect and the places tourists and businesses should wish to go to.
We should all salute the courage of small countries who stand up for what is right and say NO to paying for the greed and law-breaking of others.
Cyprus should follow this example as should any self-respecting country whose Politicians are standing by, looking the other way and pretending nothing is wrong when their banks are bringing families, businesses and countries to their knees and no punishment gives the guilty a stamp of approval to carry on doing it.
Europe is being violated by Politicians who have no idea of Economic Principles nor the protection of consumers who are in the hands of a Judiciary also protecting the Banks.
This has allowed the Banksters to gain so much power that they are ruling the Politicians who do not understand Economics and the judiciary who obey the European rulings which protect the Banks not the consumer.
A lot of courage which can only come from ordinary people, is needed to put a stop to this financial abuse and corruption.
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