Cyprus and Ice­land, so dif­fer­ent from Lux­em­bourg

Financial Mirror (Cyprus) - - FRONT PAGE -

Dear sir,

On the same day that the Cyprus me­dia an­nounced le­gal charges were be­ing pressed against Cypriot bankers (Laiki and Bank of Cyprus) for their in­vest­ments in Greek bonds, the Fi­nan­cial Times fea­tured a story on ju­di­cial pro­ceed­ings in Ice­land against man­agers in­volved in that na­tion’s fi­nan­cial cri­sis.

Both Cyprus and Ice­land are small coun­tries which have suf­fered from the 2008 fi­nan­cial cri­sis and in both cases banks were closely in­volved. An­other sim­i­lar­ity is the fact that Ice­land’s bank­ing re­lated prob­lems, like those in Cyprus, cen­tered about three ma­jor banks which ac­counted for as­sets ten times that coun­tries GDP.

The anal­ogy is one which may well hold lessons for us. Mar­kets work best when there are many com­peti­tors. The mis­takes or trans­gres­sions of the few are then less likely to ef­fect the en­tire sys­tem.

That is es­sen­tially the Lux­em­bourg model, the rich­est coun­try in the EU with a pop­u­la­tion smaller than that of Cyprus.

De­spite a bank­ing sec­tor sev­eral times big­ger than our own, Lux­em­bourg has not had our prob­lems. Lux­em­bourg’s bank­ing in­dus­try is much less con­cen­trated with over 140 banks.

The largest Lux­em­bourg bank ac­counts for only 13% of to­tal bank as­sets, com­pared to a fig­ure of some 27% for the Bank of Cyprus and even more in pre­vi­ous years. In think­ing of the fu­ture di­rec­tion of bank­ing here, it would be well to keep in mind that small coun­tries, those with 1 mil­lion pop­u­la­tion or less, have demon­strated only three roads to pros­per­ity: tourism, oil and in­ter­na­tional bank­ing plus other fi­nan­cial ser­vices. Of the three, only the lat­ter can pro­vide both the quan­tity and qual­ity of jobs that Cyprus needs for its highly ed­u­cated youth.

Dr. Jim Leon­ti­ades Cyprus In­ter­na­tional In­sti­tute of Man­age­ment, Ni­cosia

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