Cyprus needs to start preparing to attract foreign lenders to the island, according to the head of an independent commission on the country’s financial industry.
Cyprus “should set attracting new foreign entrants to the market as an objective,” David Lascelles, chairman of the Independent Commission on the Future of the Cyprus Banking Sector, said in an interview on Monday.
The government “should start putting in place a new attractive regulatory framework so it’s ready for the moment when it can go out and get new banks.”
Cyprus’s four biggest financial institutions – Bank of Cyprus, Hellenic Bank, Cooperative Bank and Russian Commercial Bank (Cyprus) – will probably be directly supervised within one year by the European Central Bank, relieving Cyprus’s central bank from some of its responsibilities, said Lascelles, who is also senior fellow and joint founder of the London-based Center for the Study of Financial Innovation.
The shake-up of the country’s banking industry could leave Bank of Cyprus “as a very large bank,” which could lead to problems in terms of stability and competition, Lascelles said.
“Cyprus must be prepared at some point further down the line to deal with that,” he said.
Cyprus should guarantee all deposits in the country’s banks to restore depositor confidence after the imposition of a deposit levy, the ICFCBS said last Thursday, in one of 35 recommendations for the recovery of the island’s banking industry.
European authorities should back the guarantee with a commitment to provide the necessary liquidity and capital support, it said.