Time for a Proper Accounting

4 December 2014

The collapse of the Cyprus banking system in 2012-13 was one of the most serious economic tsunamis faced by any country in the modern age. The principal fault lay with the three large local systemic banks, of course, but the supervisory authorities have not escaped censure.*

In recent years the Central Bank of Cyprus has reeled from one disaster to another. One of the major problems is that some senior officials have neither prior experience of bank supervision or of banking itself. Many have been brought in from other disciplines and as is widely evident elsewhere in Cyprus, many positions are acquired less by what you know than who you know.

Because among those in senior circles there is a lack of necessary expertise, it makes it all the more important that such people are fully supported by technically proficient and mature middle managers within the Central Bank. It is clear that there are people in the middle ranks of the Central Bank who are talented, hard-working and well-meaning, so it is important to ask what is going wrong?

It is in this context that the Central Bank of Cyprus’s commandeering of the Cyprus branch of FBME Bank must be viewed. In the case of FBME Bank the Central Bank has given bogus justifications for its actions and has invoked laws that are not fit for purpose, while refusing to provide anything more than the briefest explanation. Is the Central Bank above the law? It appears to show precious little respect for it.

In the FBME case the outcome will be a claim for compensation of at least US$ 500 million that, if confirmed, will be met by Cyprus taxpayers, who are again the victims of maladministration by the Republic’s Central Bank. The Central Bank continues to take action which inflicts damage on FBME, while harming the reputation of the Republic. This perpetuates the impression built up over the past few years that, as a supervisory body for banking, the Central Bank of Cyprus is not up to the job. It too often assumes rights it doesn’t have and shirks responsibilities that it should bear.

On this website, we have raised questions on behalf of FBME Bank, its employees, owners and customers that have remained unanswered. Now that the case is in the dock of the ICC we expect to hear a proper explanation. It is high-time.

*For further information on the failures associated with the Cyprus banking and supervisory systems refer to the final report and recommendations of ‘The Independent Commission on the Future of the Cyprus Banking Sector’, published in October 2013. This report found ‘flaws in the governance of the CBC’ (Central Bank of Cyprus).