A statement issued by the CBC said the board’s audit committee, comprising of non executive members, will investigate the manner in which ELA worth more than half the island’s GDP wasgranted to Laiki, which collapsed in March 2013.

The decision was taken on November 17, the central bank said in an emailed statement.

On November 18, the New York Times reported that Cypriot authorities and the European Central Bank agreed to provide ELA to Laiki, even as they knew that the bank was insolvent, in violation of the European Union treaty.

New York Times cited a report commissioned by President Nicos Anastasiades, labelled “secret”.

ECB was in the loop
According to a document dated May 2, 2012 and labelled “ECB-Confidential” included in the leaked report, the CBC said the failed lender’s 2011 final results showed a revised loss of €3.65 billion mainly on Greek government bond write-downs in October 2011, which wiped out its capital.

“Consequently, the regulatory capital has decreased by €315.5 million, with the core capital being reduced to minus €205 million, tier 1 capital to €598 million and total capital to €1.003 million,” the CBC document said. “Taking into account the final audited financial statements, on the basis of the bank’s capital plan and government commitment to provide support to Cyprus Popular Bank in case its recapitalisation plan does not materialise fully through private sources, the banking supervision department of the Central Bank of Cyprus assesses that Cyprus Popular Bank (Laiki) remains solvent”.

In another document dated July 31, 2012, ECB executive board member Benoît Cœuré wrote to former central bank governor Panicos Demetriades who took office on May 2, 2012, succeeding Athanasios Orphanides, that the Cypriot supervisory authority could revise “the ELA valuation and haircut methodology in particular for credit claims,” such as non-tradable instruments.

“The CBC has in principle the possibility to apply less stringent valuation and haircuts compared to the approach followed by the Eurosystem in credit operations,” Cœuré said according to the disclosed document. “This should of course be done in a transparent and reasoned way, substantiating the claim that standard Eurosystem haircuts are not necessary in the case of certain types of collateral accepted under ELA”.

Comprehensive report
Earlier today, Finance Minister Harris Georgiades said that outgoing correspondence from the finance ministry to the ECB proved the Christofias administration prepared the draft bill on the ‘haircut’ imposed on Cypriot depositors in March 2013.

Under the terms of the international bailout, insolvent Laiki merged with Bank of Cyprus, which inherited the outstanding ELA. Also, depositors at Laiki lost all their deposits in excess of €100,000 while those at bank of Cyprus saw nearly half their uninsured deposits converted into equity.

Georgiades who was commenting on the New York Times report, said “it is a fact that there is correspondence from the ministry of finance requesting opinions on a draft bill identical to the one that emerged right after the change in government. It provided that the inevitable would happen”.

Georgiades said that while the previous government denied it had knowledge of the intention of foreign creditors to impose a haircut on Cypriot deposits to recapitalise banks, it had received related opinions from the ECB on the draft bill.

The finance minister described the report to president as an internal government document, the most “comprehensive” of its type, which was authored by more than one person advising the president. “It is not the first document to leak,” he said and added that “it is a matter that attracts interest internationally”.

Source: Cyprus Mail