Handling of the Emergency Liquidity Assistance of Laiki Bank in the Bailout Package of Cyprus

Abstract

This report explains why the handling of the Emergency Liquidity Assistance (ELA) of the Laiki Bank with the March 25th Eurogroup decision by which the entire liability (about 9.2 billion Euros) is passed onto the Bank of Cyprus (BoC), as part of the "good" Laiki, is illegal and bad for the Cyprus economy. We cannot tell what the exact cost to the economy is since we do not know the exact agreement for the provision of ELA to Laiki. Nevertheless, all indications lead us to believe that the damage to the economy because of the mishandling of this issue is huge. I also provide the correct and lawful handling of this issue along with the economic benefits of doing so.

Keywords: Emergencency Liquidity Assistance, Bank Resolution