The recent Limassol court ruling awarded €5.7 million in compensation to Laiki Bank depositors, marking a historic decision and potential precedent for future cases involving bank depositor compensation and banking regulator accountability. This ruling is significant as the second victory for plaintiffs in the aftermath of the 2013 Cyprus financial crisis.
What is the significance of the recent Limassol court ruling regarding Laiki Bank depositors?
The Limassol court awarded €5.7 million in compensation to Laiki Bank depositors, marking a historic decision. It is significant as the second plaintiffs’ victory in the aftermath of the 2013 Cyprus financial crisis, potentially setting a precedent for future cases involving bank depositor compensation and banking regulator accountability.
Historic Ruling for Bank Depositors
In a landmark decision this week, the Limassol court has ruled in favor of a group of depositors associated with the now-defunct Laiki (Popular) Bank, marking a significant turn in the saga of the 2013 financial crisis in Cyprus. The group, composed of Russian and Belarusian nationals, were awarded a substantial €5.7 million as compensation for their losses incurred during the controversial ‘haircut’ of March 2013.
The Second Victory for Plaintiffs
This ruling is notable as it represents only the second instance where plaintiffs have emerged victorious in cases linked to the financial turmoil and bail-in of 2013. This outcome follows closely behind the first successful case, setting a possible precedent for future litigation.
Legal Battle Dynamics
Initially, the lawsuit included Laiki Bank as a defendant. However, the bank had to be excluded when it entered liquidation, rendering it unable to provide restitution to the plaintiffs. This shifted the focus towards the Central Bank of Cyprus (CBC) and the Republic of Cyprus, who have now been held responsible for their roles as banking regulators.
The Basis of the Compensation
The €5.7 million compensation effectively returns all the uninsured deposits over €100,000 that the plaintiffs lost during the bail-in. The court found that the CBC and the Republic were both liable for negligence and failing in their duty to warn about the risks associated with the Greek government bonds write-down, which significantly impacted Laiki Bank.
Central Bank’s Oversight and Subsequent Fallout
The Central Bank’s exemption of government bonds in calculating Laiki’s capital adequacy ratio, even amidst a liquidity crisis, led the bank to continue operations under the guise of solvency. Despite not meeting capital adequacy ratios, Laiki Bank was provided with Emergency Liquidity Assistance until May 2012.
The Defendants’ Stance
Despite the ruling, the defendants had denied negligence, arguing that the resolution of Laiki and Bank of Cyprus, alongside the international lenders’ bail-in decision, served the public interest.
A Rescue Package with Lasting Implications
The €10 billion rescue package agreed upon by the Cypriot government and the ‘troika’ of international lenders on March 16, 2013, explicitly excluded the use of funds for recapitalizing Cypriot banks. Instead, the bail-in approach was introduced—a decision that remains contentious to this day.
Parliamentary Decisions and Their Aftermath
The Cypriot parliament’s rejection of the one-time ‘tax’ on all bank deposits was followed by laws allowing the resolution of Laiki and Bank of Cyprus. This series of events played a crucial role in the financial landscape that led to the court’s recent decision.
Differing Outcomes in Similar Cases
In a turn of events, on the same day, a Larnaca district court ruled against a similar lawsuit, finding the Central Bank and the state not responsible for the series of events leading to the ‘haircut’.
The Verdict and What Lies Ahead
With the attorney-general’s office representing the Republic, it is currently unknown whether there will be an appeal against this recent decision. As the legal processes unfold, these rulings will undoubtedly have a significant impact on the future handling of bank depositor cases and financial regulations in Cyprus.
Quick Recap
- The Limassol court awarded €5.7 million in compensation to Laiki Bank depositors, marking a historic decision.
- This ruling is significant as the second plaintiffs’ victory in the aftermath of the 2013 Cyprus financial crisis, potentially setting a precedent for future cases.
- The lawsuit initially included Laiki Bank as a defendant, but it had to be excluded when it entered liquidation.
- The compensation returns all uninsured deposits over €100,000 that the plaintiffs lost during the bail-in.
- The Central Bank of Cyprus and the Republic of Cyprus have been held responsible for negligence and failing in their duty to warn about the risks associated with the Greek government bonds write-down.
