One Year On – the ‘Fiasco’ that has Harmed Everyone

19 July 2015

Special feature: the dark Anniversary of the CBC’s Resolution decree.

FBME has marked the First Anniversary of the disastrous decisions that launched the Fiasco of Resolution against FBME’s Cyprus branch by taking full-page announcements in newspapers in the Republic. Due to a virtual paralysis of decision-making on the part of the Central Bank of Cyprus (CBC), it has become necessary to set out to the general public what has occurred. The announcement ends on a positive note, however, by pointing the route to a practical way to reduce the harm and reverse past actions. Click here for a copy of the announcement.

The overall message is positive and picks up on the encouraging theme of cooperation. It will be remembered that the CBC itself issued a note on 10 July saying that it wished to work with “all stakeholders so as to reach an optimum solution”.

The FBME announcement quotes a number of initial steps that should be taken: all parties to work together to re-start the Bank and Card Services; cooperation should continue in relationship-building with correspondent banks; third-party services provided to the Bank should be renewed; there should be much improved communications between all parties, and the findings of CBC’s investigations into FBME operations should be released. All of the steps are reasonable and quick to initiate.

If adopted, these recommendations will enable the Bank to again make a positive contribution to the economy of the Republic, while doing much to restore the image of the banking sector here. This is vital to help the Republic recover from the financial meltdown of recent years.

Prior to the Resolution, FBME was one of the largest private sector contributors to the State. From the start of 2008 to the middle of last year, overall spending on salaries, goods, services, infrastructure and tax was EUR 134 million. It was an important employer in the banking sector and it has remained committed to local causes. The Bank loaned funds to the Electricity Directorate to help it recover after the Mari explosion in 2011, and it had invested in Government bonds in stages from 2012 reaching a total of EUR240 million. Immediately prior to the announcement of the CBC’s actions against FBME an agreement with the Ministry of Finance had been reached in principle that would have seen an investment of $300 million

With one swipe of the Resolution Committee’s pen on the night of 21 July 2014, with the approval of the Ministry of Finance, all of this was taken away from the people of Cyprus.

But there is other damage that cannot be forgotten, as the announcement makes clear, such as claims for compensation that could reach hundreds of millions of euros. In addition, the Republic has squandered funds on fighting the issues and in employing high-paid foreign advisers. The taxpayer has had to pick up the bill for this. There is also harm done to the customers and employees of FBME; the markets have suffered and innocent parties have been damaged. No one is emerging from this Fiasco without facing severe damage.

The most exasperating part is that all of this was totally unnecessary; none of it needed to happen.

What caused it? As we know the CBC has said very little and has never properly explained its actions. Initially, its senior officials said that the Resolution Decree was used to take over the FBME Bank Cyprus branch as a way of protecting depositors because correspondent banks had refused to deal with FBME. This was quickly shown to be untrue.

In February 2015, the CBC changed tack and said that the Resolution Decree was required as a direct result of the FinCEN allegations. Again, this is nonsense. FinCEN did not require any action to be taken and indeed gave FBME Bank 60 days to answer the allegations (which FBME has done). It was expected that the CBC – which has supervised the FBME branch for 32 years and was itself implicated in the FinCEN allegations – would have worked with the Bank.

The fact that the CBC did the unforeseen and worked against the Bank contrary to all international codes and rules, has unleashed a torrent of unexpected consequences which all are suffering from to this day.