Under the terms of the deal, uninsured deposits of more than $128,600 in the Popular Bank of Cyprus, the nation’s second largest bank, will be taxed. The levy is expected to contribute approximately $5.5 billion towards the nation’s bailout package, CNBC reports.
Deposits of less than $128,600 will be moved to the Bank of Cyprus, the nation’s largest bank. Bank of Cyprus depositors could lose 30 percent on their holdings of above the threshold.
“I would like to emphasize that none of these measures will affect deposits below [$128,600], there should be no doubts about that,” Jeroen Dijsselbloem, the president of Eurogroup, said, according to CNBC. “We reaffirm that importance of fully guaranteeing these deposits in the European Union.”
During initial talks last week, the Cypriot parliament rejected a plan to tax large and small deposits, which was a term of the initial agreement that the nation raise $7.5 billion towards its own bailout in return for nearly $13 billion in funds from the ECB and IMF.
Dijsselbloem said to “forget the [$7.5 billion] figure now as we’re not using it anymore,” adding “we’re pretty confident that we can do what’s necessary with the [Cypriot] government with the [$13 billion] bailout,” CNBC reports.
An ECB official said that most Cypriot banks will reopen on Tuesday, but both the Popular Bank and Bank of Cyprus will remain closed until Thursday. Banks in Cyprus have been closed since last week, and the nation has imposed capital controls to prevent a flood of cash leaving the country.
“We have achieved the best possible outcome under the circumstances, and today’s decision by the Eurogroup puts an end to the uncertainty that has been affecting the Cyprus economy for the past three years and creates the chances of a new beginning,” Cypriot Finance Minister Michael Sarris said, according to CNBC.
The deal is expected to force uninsured depositors—wealthy Russians in particular—to take heavy losses on their funds. Twenty percent of all bank deposits in Cyprus are held by Russians.