12 March 2015
Reflections on the handiwork of the Cyprus Resolution Authority and Resolution Committee.
The Resolution Authority and Committee of the Central Bank of Cyprus (CBC) are very much in the news at the moment, none of it favourable to them. The latest debacle is the Administration of the defunct Laiki Bank, in which Cyprus account holders suffered huge losses of hundreds of millions of euros. The specific focus is on the Resolution Authority’s highly conflicted legal action against Laiki’s former Chairman, Andreas Vgenopoulos. The Special Administrator appointed to handle the Resolution of Laiki, Andri Antoniades, resigned on Monday 2 March, blaming the Governor of the Central Bank and the Resolution Authority for monkey business linked to the legal case, including the assertion that the Governor’s daughter is on the former Laiki Chairman’s payroll despite earlier promises she would step down.
This Resolution Authority and its Resolution Committee are now much tarnished. How much damage they will be allowed to continue to inflict on the poor taxpayers of Cyprus, the creditors of Laiki Bank and the customers of FBME’s Cyprus branch, remains to be seen.
We thought it an opportune moment to bring readers up-to-date with the functioning of the Resolution Authority and its subsidiary arm the Resolution Committee.
The Resolution Authority was established in 2013 on the demise of Laiki Bank and the almost complete collapse of the domestic banking sector in Cyprus. The Authority is made up of members of the Board of Directors of the CBC.
Until today, the Resolution Committee was comprised of three members of the very same CBC board: the Governor, Chrystalla Georghadji (a former auditor general), and its two Executive Directors, George Syrichas and Stelios Kiliaris (economists and academics). Now, Mr Kiliaris is reported to have resigned, citing the corruption, mayhem and incompetence surrounding the Central Bank. None of the three members of the Resolution Committee has ever worked in a bank.
There is no outsider from the CBC on either body. This is what is called ‘one hand washing the other’ and has led to maladministration almost wherever it is found. Theoretically, the Minister of Finance can exercise a veto on major measure proposed by the Resolution Authority but, as we have seen, this is toothless given his own massive and separate responsibilities.
Surely, the ECB hadn’t expected this to have been the outcome of its declaration on the independence of central banks. Perhaps it would have assumed that the Resolution Authorities or Resolution Committees would at least have some representation from experienced bankers and central bankers, and not political appointees.
That’s the way it has been since March of last year. Earlier, the Resolution Authority was comprised by the Ministry of Finance and the Securities and Exchange Commission CYSEC, as well as the Central Bank, a setup intended to curb the absolute power of the CBC. Now, this power is very much back in the driving seat. The Authority and the Committee are piling more damage on the Cyprus financial sector, domestic account holders and taxpayers, and the Republic’s reputation abroad.
The following story on this website is a continuation of this article, and gives a fuller list of the malpractices and performance levels of the Resolution Authority that have been commented on by this website since the FBME episode began.