ABSTRACT
This chapter discusses the events of March 2013, and put these events in a broader historical perspective, concentrating on the economic developments in Cyprus, especially those related to the banking sector. It discusses the crisis and Cyprus' resolution in relation to the European banking union. The Cyprus crisis has highlighted with regard to the establishment of a European banking union is the implications of the close ties between sovereign and banking risks. The Cyprus banking system was much larger than the country's gross domestic product (GDP) and was funded by depositors. The Cypriot crisis has underlined the need for a supra-national supervision system, a euro area wide resolution mechanism and for a euro area wide deposit insurance scheme. The main objectives of deposit insurance, is to prevent bank runs, was the idea behind the increase of deposit insurance, following the global financial crisis. The problems of the Cypriot banks became obvious in 2011 when the Greek sovereign debt was restructured.
