Gold Magazine November - December 2013, Issue 32 | Page 74

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ans-Joachim Duebel, founder of the Berlin-based financial and real
estate sector specialist Finpolconsult, recently produced a study
for the Centre for Financial Studies of the University of Frankfurt
entitled The Capital Structure of Banks and Practice of Bank
Restructuring: Eight Case Studies on Current Bank Restructurings
in Europe. One of case studies was Laiki (Cyprus Popular) Bank.
Duebel, who is one of the speakers at the forthcoming Cyprus
Banking Forum, presented by Gold, at the Hilton Park Hotel,
Nicosia on 5 December, talks about the Europgroup’s handling of
the Cyprus banking crisis. By JohnVickers

Gold: You have written that what happened in Cyprus with Laiki Bank and
Bank of Cyprus was “a classic US strategy”. Why do you think it was implemented in Europe?
Hans-Joachim Duebel: Because the fatigue of policy makers and their advisors
with taxpayer-funded bank rescues had
reached a peak by 2012-13. Even junior
bond creditors had been left untouched in
the first wave of bank rescues in Northern
Europe (2008-2010). There is a parallel
with the US S&L crisis of the 1980s, when
it also took a couple of years to change
policies from bail-out to bail-in. The turning point for Europe was, in fact, not Cyprus in November 2012, but Spain in June
2012. At that time, Germany was asked at

the European summit to back up direct recapitalizations of banks while some Spanish
Cajas were still offering junior bond holders an exit at par (no losses). This prompted
Germany to ask Spain for a sovereign
guarantee for the eurozone funds and pass
a bail-in law. The ECB turned around on
this after Germany had given green light in
late July on the OMT. You may see it as a
quid pro quo.
Gold: You have described as “misguided” the Emergency Liquidity Assistance
(ELA) from the European Central Bank.
What do you mean?
H-J. D.: Let us consider Laiki. Some of the
ELA that built up from September 2011
until the ECB pulled the plug in February

2013 had been used to fund collateral –
covered bonds and sovereign bonds – that
had fallen out of ordinary ECB repo. So
far, so good. However, during that period Laiki also was constantly losing large
amounts of deposits, mostly from its International Business Unit and from other
foreign depositors. Back on the envelope,
perhaps half of the ELA turned around and
left Cyprus again. Without the ECB providing ELA de facto without limitations,
Laiki would have been unable to cater for
this capital flight. The ECB understood
that supporting capital flight from a bank
with solvency problems dramatically undermines the credibility of its overall liquidity
policy framework. In September 2013,
the ECB tightened its ELA policies. Not

74 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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