A Cyprus Central Bank report probing into the sale of securities involving the two largest banks of the island, Bank of Cyprus (BoC) and Cyprus Popular Bank (Laiki) has been completed, Central Bank Governor Panicos Demetriades said on Tuesday.

Demetriades, who was addressing the Parliamentary Committee on Institutions, said that the results were sent to the two banks on Friday, while the decision was also handed over to House of Representatives President Yiannakis Omirou.

He further noted that in view of the situation the Cypriot banking sector finds itself, sanctions will be symbolic.

The Committee was discussing the financial results of the two banks in the last three years and the facts based on which they had decided to expand their operations abroad, in the context of an ongoing discussion regarding the banking system.

Replying to a question as to whether there is good reason not to make the report’s findings public, Demetriades said that that the Central Bank cannot release such decisions.

He explained however, that the report contains conclusions and sanctions, which as he put it, are symbolic due to the situation the banks are faced with today.

Referring to the Bank of Cyprus, he noted the Central Bank decided that it would not be appropriate for new shareholders to have to bear a large fine on the losses and the behaviour of others.

He explained that the Central Bank cannot impose sanctions on those who initially took decisions but rather to the banks.

Speaking on the Emergency Liquidity Assistance (ELA) used by Laiki, Demetriades set out the procedures followed by the Central Bank. He said that the use of ELA has nothing to do with the bank’s solvency, explaining that ELA replaces an outflow of deposits.

The Central Bank was probing into allegations that BoC and Laiki misled investors into purchasing securities, or that the staff who sold them was not sufficiently qualified to do so.

Excluded from international markets since April 2011, Cyprus applied for financial assistance from the EU bailout mechanism in June 2012, after its two largest banks sought state aid following massive write-downs of Greek bond holdings amounting to €4.5 billion.

Cyprus and its international lenders (the European Commission, the European Central Bank and the IMF) agreed late March on a €10 billion bailout programme, which provided for a haircut on uninsured deposits in the island’s two largest banks.
Under the agreement, Laiki, Cyprus’ second largest lender would be wound down and BoC, the island’s largest lender, will absorb its good part. This process is already well underway.

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