6 November 2014

It is now slightly more than 15 weeks since the Central Bank of Cyprus invoked the Resolution Decree to commandeer the Cyprus Branch of FBME Bank. At the time, the Central Bank said it was doing this to protect the Bank’s depositors and to sell the Branch.

It takes only a brief look at what has happened over the ensuing 15 weeks to realise that depositors do not feel they have been protected. Quite the opposite, in fact. Several hundred found their accounts frozen from the start of September until today, 6 November, without having been given any explanation, in contrast to what is considered normal international practice. (Notwithstanding, we are grateful that the Central Bank has now ordered these accounts unfrozen.) Many other depositors are effectively unable to access their accounts unless they come to Cyprus.

What definition of protection does this fall into?

Secondly, no sale of the Branch has been proposed, at least in public. While FBME’s owners have fought the sale in the courts, first in Cyprus and now internationally through arbitration at the ICC, the Central Bank of Cyprus has never provided details of proposed buyers either to the owners of FBME or to the courts.

So why did the Central Bank invoke the Resolution Decree? Now they say, it was because ‘principal’ correspondent banks refused to transact with FBME. It is important to note that they didn’t use this explanation until a few weeks (actually, 8 August) after having imposed the Resolution. Of course, no one would have known what the situation would have been on 21 July. So, did they just guess what would happen?

It is known that the original purpose of the Cyprus Resolution Decree was aimed at taking into administration banks that cannot pay their depositors; there were examples of this in Cyprus in early 2013. But FBME Bank did not fall into this category, being highly solvent and liquid. There were ‘principal’ correspondent banks also willing to continue non-dollar transactions with FBME; FBME’s managers told the Central Bank’s Administrator but he refused to let these arrangements be set up.

By the way, we use ‘principal’ in this way, as that is how the Central Bank of Cyprus’ website describes them (statement on 8 August). This is an acknowledgement, we suppose, that there were plenty of other banks, which they did not consider ‘principal’ (whatever that means), that were willing to continue as correspondents.

Why did the Central Bank of Cyprus instruct those correspondents who are holding FBME deposits to transfer them to the Central Bank’s own accounts on 18 August – unsuccessfully as it turned out? What was going on there?

The whole affair of the FBME Resolution Decree is shrouded in mystery because the Central Bank of Cyprus does not explain its intentions. This has given rise to grave concerns, with leading Parliamentarians in Cyprus now saying that the affair has been ‘mishandled’ by the Central Bank.

Whether the actions were inept or whether there were more sinister reasons behind what has gone on, the Central Bank offers no explanation. It is as if it feels itself accountable to no one – and the FBME case is not the only example of this at the moment. Now that the Republic of Cyprus has landed in international arbitration as a result of whatever lay behind the Central Bank’s thinking, presumably there will have to be some answers before too long.