Tin hats, bank runs and going AWOL on the Co-op frontline

You know things are not going right when politicians must meet up on a Sunday in parliament instead of chilling in their summer holiday villas while keeping soundbites tucked down their shorts. But like so many crises in the past, our political leaders have displayed an unwavering talent to fight themselves in a corner they can’t get out of.

The last time the situation was this critical and had to be dealt with over a weekend came during the banking meltdown of 2013. A noble time when our defiant local MPs tried to take on the European Union and international lenders, but got a bloody nose in losing the island’s second largest bank, Laiki. Cypriots not only lost their savings (above EUR 100,000) overnight but were subjected to capital controls and the banking system shutting down altogether for a couple of weeks. It doesn’t take hindsight to argue that we should have heeded the signs long before Cyprus grappled with the prospect of bankruptcy.

Critics argue that what led the economy to destruction was spineless leadership, lack of institutional supervision, crooked bankers and a cultural tendency to look away when the bitter truth is biting at our ankles. We know how that masterpiece of non-fiction turned out and Chapter II seems to be unfolding before us. Again, the scenes of long queues trapped in banks, while others raid the ATM machines that populate the Cyprus landscape.

The stern lesson of five years ago have not been learned, especially by our politicians. They said the Co-op bank was too big to fail, which is why the government stepped in to bail it out with a billion plus in spare cash when the financial earthquake struck. After Laiki, the Co-op – the biggest holder of Cypriot deposits - could not be allowed to fall. Guess what? It did. Bad management, too many people doing too little, loans given out like sweets without collateral and you get the picture. Bottomline, the Co-op wasn’t run like a proper banking institution and the debt spread like gangrene.

There was only one realistic option for the government – after throwing a few more billion at it – cut off the infected limbs and save the good parts to give life to others. Granted, the government may have also made mistakes on the way to the butcher’s shop, but what other option did it have in saving a failed bank.

The opposition cried foul over the sell-off of a precious asset without coming up with an alternative.

Besides shifting the good bits of the Co-op to Hellenic Bank and putting non-performing loans in quarantine, the other extreme would be to let the bank die and leave the shareholders to sort the mess out. Either way, the taxpayer is going to foot the rather considerable bill. Inevitably, there has been a lot of white noise and bluster coming from the opposition camps suggesting skulduggery of the highest order, coupled with treason in the first degree – but this does not consist of an exit strategy. All it did was scare people into thinking their money was not safe triggering a mini-bank run that forced the Co-op to introduce monetary restrictions (sounds familiar).

Therefore, an issue that could have been contained if handled responsibly went nuclear causing unnecessary alarm, damaging confidence and the economy. A snowball effect is now in motion with the issue of bad loans raising its myriad tentacles.

We need more effective legislation (surprise, surprise) on repossessions to repay debts because the number of foreclosures are less frequent than a Neymar dive at the World Cup (couldn’t resist it). Maybe that’s the reason the Co-op management has been shy coming forward in trying to explain to customers that their savings are not safer under the bed. That doesn’t matter now as the board has been axed and nobody seems to be running the shop (no change there then).

In addition to the anonymous Co-op, there has been a deafening silence from the Central Bank which seems to have deserted after losing its nerve on the frontline. Never mind, tin hats will be the order of the day when parliament convenes for the emergency Co-op debate.