Confirmed: Bank Deposits To Be Seized In Cyprus, Many Cypriots Have No Cash (+video)

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Cyprus has agreed to shrink its bloated financial industry and tap big depositors at its two leading banks for billions of euros, clearing the way for a €10 billion European Union bailout the island nation needs to avoid collapse.

The deal with the EU was struck early Monday after days of frantic negotiations that followed the rejection by Cypriot lawmakers of Plan A. That proposal, unveiled little over a week ago, would have imposed a tax on all account holders to raise funds to recapitalize the failing banks.

Now the new bailout plan will protect all deposits of less than €100,000 euros but is likely to mean much bigger losses for account holders with more than €100,000 at the two biggest banks — the Bank of Cyprus and Popular Bank of Cyprus.

Popular Bank will be broken up immediately. Its viable assets will be integrated into the Bank of Cyprus, and its non-performing loans will be moved into a “bad bank” to be wound down.

The “haircut” for Popular Bank depositors will raise about €4.2 billion, while shareholders and bondholders are likely to be wiped out. The scale of depositors’ contribution to the restructuring of Bank of Cyprus has yet to be fixed.

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