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Document Type

Case Study

Case Series

Ad hoc Emergency Liquidity Programs

Abstract

Following the European Union’s decision to restructure Greek debt in October 2011, Laiki Bank’s depositors began to withdraw their funds from the bank in growing numbers after it reported that its portfolio of Greek government bonds had lost EUR 2.3 billion in value. Beginning October 2011 and lasting until the bank’s resolution in 2013, Laiki Bank requested and received emergency liquidity assistance (ELA) from the Central Bank of Cyprus (CBC) so that the bank could continue to fund itself as depositors withdrew their funds. In June 2012, Cypriot authorities recapitalized Laiki Bank, and the government became an 84% shareholder. From July 2012 through March 2013, Cypriot authorities were in negotiation with the troika—the International Monetary Fund, European Commission, and European Central Bank—for a rescue deal for the government. During this time, ELA to Laiki Bank reached 60% of the Cypriot gross domestic product. Ultimately, in March 2013, Cyprus put Laiki Bank into resolution. The CBC took over and coordinated the transfer of Laiki Bank’s insured deposits, along with most assets (including the EUR 1.8 billion Cyprus government bond from the June 2012 recapitalization) and some senior liabilities, through a purchase and assumption transaction to the Bank of Cyprus. This included the rollover to the Bank of Cyprus of Laiki Bank’s EUR 9.1 billion in outstanding ELA owed to the Central Bank of Cyprus. After the transaction, the Bank of Cyprus had a total of EUR 11.4 billion of ELA funding as of April 2013. It paid most of this back by the end of 2015 and had fully repaid it by January 2017. The size and extent of the ELA provided to Laiki Bank was controversial, however. According to the CBC, resolving the bank earlier wasn’t feasible because of fiscal and political constraints.

Date Revised

2025-04-15

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