Volume 25, Numbers 3 & 4 / September/December ,
Banking Crisis, Sovereign Debt Restructurings, and Financial Stability Policies in Cyprus During 2012–13
Multinational Finance Journal, 2021, vol. 25, no.3/4, pp. 163-186
Tamon Asonuma , International Monetary Fund    Corresponding Author
Michael G. Papaioannou , International Monetary Fund
Takahiro Tsuda , World Bank, USA

Cyprus’ domestic sovereign debt restructuring in 2013 was undertaken in the context of the country’s economic adjustment programs. The government agreed to a € 9.0 billion program with the European Stability Mechanism on March 25, 2013 and a €1.0 billion program with the International Monetary Fund on May 13, 2013 (both programs were concluded at end-March 2016). In this context, Cyprus’ second-largest bank, the Cyprus Popular Bank (CPB), was closed, and a unique bail-in mechanism was applied, with a one-time bank deposit levy (haircut) imposed on all uninsured deposits of CPB and on 47.5 percent of uninsured deposits of the largest commercial bank, the Bank of Cyprus (BoC). No insured deposit of Euro 100,000 or less would be affected. The debt restructuring was successful in attaining substantial debt relief, reducing the country’s debt-to-GDP ratio, and restoring financial stability, although at a high cost for some depositors. The bail-in of both resident and nonresident depositors helped mitigate the burden of high bank recapitalization for the general public.

Keywords : Sovereign Debt; Sovereign Debt Restructuring; Cyprus; Banking Crisis; Financial Stability Policy;
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