ABSTRACT
This chapter focuses on assessing the resolutions provided to financial institutions in the EU and the reasons that triggered the Cypriot banking crisis of 2013. Although Cyprus is considered to have an advanced economy since 2001, 1 Cyprus is the second country with the most non-performing loans (NPLs) in Europe. 2 The economic stability of Cyprus in 2013 was vulnerable, which due to various reasons, led to a domino effect that caused the liquidation of The Cyprus Popular Bank (Laiki) and the urgent initiation of the unprecedented tool of bail-in. Cyprus provides a useful example of a crisis-ridden economy that required a range of financial and legal measures to abate the effect of the crisis.
This chapter also considers the issue of NPLs to establish whether Cyprus has dealt effectively with the reduction of NPLs. The corollary is to evaluate whether the remedies provided through the Resolution of Credit Institutions and Investment Firms Law 22(I)/2016 (subject to the Bank Recovery and Resolution Directive) 3 are efficient in dealing with bank stability/insolvency in a time-critical scenario. This chapter examines the impact of these measures on the banking system of Cyprus, as the banking crisis of Cyprus was used as a paradigm for informing European Union legislators on the final version of the Bank Recovery and Resolution Directive. Any economy – whether developing or developed – needs an operational infrastructure that could deal with banking crises in time-sensitive fashion and in a manner that aptly captures critical stakeholder interests.
