Banking Crisis in Cyprus

Banking Crisis in Cyprus

Banking Crisis in Cyprus

The performance of the Cypriot economy good and it was somewhat unharmed by the worldwide recession in 2009. Cyprus’s problems started when neighboring Greece experienced a financial as well as economic meltdown. According to Ayadi & Arbak (2014), for historical reasons, the banks in Cyprus had lending levels that were very high in Greece in addition to heavy investment in the Greek government bonds.

Conversely, the bondholders in Greece were compelled to surrender significant sums that the Greek government owed them, an occurrence that was known as a haircut, on condition of the bailout package that was agreed upon.

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The assets that were held by the Cypriot banks comprised of approximately eight times the Cyprus’s economic output (GDP), something that explains the reason as to why the Cyprus government would not like a failure in its banks to occur despite lacking adequate financial clout to intervene and rescue them (Djankov, 2014).

In conclusion, the Cypriot banking crisis, would have been avoided if the Cyprian government had placed better measures to regulate the banking centre. Nevertheless, a lot of lessons have been learnt from his crisis, and they are significant in avoiding future financial meltdowns in Cyprian, as well as other nations.

Ayadi, R., & Arbak, E. (2014). Financial centres in Europe: Post-crisis risks, challenges and opportunities.

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