##plugins.themes.bootstrap3.article.main##

Despina Christofi

Abstract

The article focuses on the role of banks in the financial crisis and compares the UK and Cyprus, since the banking sector of the latter was founded on the former’s model when it was a British colony. However, Cyprus’ financial sector has been influenced by its accession to the EMU, while the UK remains outside the eurozone. The article begins with the theoretical background, namely the ‘too-big-to-fail’ theory, the deficient banking corporate governance and the ineffective supervision of banks, and how they affected the UK and eurozone crises. Afterwards, the measures imposed by the UK government on its banking sector and the corresponding EU financial measures are discussed. A brief evaluation of the causes of the crisis in Cyprus follows. The article concludes that Cyprus can follow the UK’s example and focus its efforts on bank supervision to improve the financial industry and to avoid a future financial crisis.

##plugins.themes.bootstrap3.article.details##

Keywords

banking supervision, regulation, too-big-to-fail, Twin Peak, European Banking Union, bail-in, deposit guarantee

References
EU Legislation

Consolidated version of the Treaty on the Functioning of the European Union, [2012] OJ C326/01.

Directive 2000/12/EC relating to the taking up and pursuit of the business of credit institutions [2000] OJ 2 126/1.

Directive 2014/49/EU on deposit guarantee schemes [2014] OJ 2 173/149.

Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms [2014] OJ 2 173/190. Protocol (No 4) on the Statute of the European System of Central Banks and the European Central Bank as annexed to the consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union [2010] OJ 83/01.

Regulation 1024/2013, conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions [2013] OJ 2 287/63.

Cyprus Legislation

Banking Law 1997-2009.

Central Bank of Cyprus Laws of 2002-2007.

Cooperative Societies Law (No. 22 of 1985 and 68 of 1987 as amended).

Secondary Sources

Alexander, K. (2015) ‘European Banking Union: a legal and institutional analysis of the Single The Cypriot Banking Sector During the Financial Crisis and Its Reforms Supervisory Mechanism and the Single Resolution Mechanism’, European Law Review, Vol. 40, No. 2, pp. 154-187.

Andenas, M. and Chiu, I. H-Y (2013) 'Financial stability and legal integration in financial regulation', European Law Review, Vol. 38, No. 3, pp. 335-359.

Andries, A. M. (2009) ‘What Role Have Banks in Financial Crises?’ Review of Economic and Business Studies, Vol. 2009, No. 3, pp. 149-159.

Barth, J.R., Prabha, A. and Swagel, P. (2012) ‘Just how big is the too-big-to-fail problem?’, Journal of Banking Regulation, Vol. 13, No. 4, pp. 265-299.

Basel Commitee on Banking Supervision, (1997, September) ‘Core principles for Effective Banking Supervision’, Basel Committee on Banking Supervision.

Bennetts, L. (2013) ‘The Cyprus “Bail-In” Exposes as “Too Big To Fail” As All Too Timid’, Forbes. Available at http://www.forbes.com/sites/realspin/2013/04/18/the-cyprus-bailin-exposes-too-big-to-fail-as-all-too-timid/ehttp://www.centralbank.gov.cy/nqcontent.cfm?a_id=8130, accessed 10 December 2016.

Central Bank of Cyprus (2011) ‘Announcement by Cyprus Central Bank of the Results of the 2011 EU-Wide Stress Testing Exercise’. Licensing and Supervision. Available at http:// www.centralbank.gov.cy/nqcontent.cfm?a_id=11847&lang=en, accessed 10 December 2016.

Central Bank of Cyprus (2013) ‘Independent Commission on the Future of the Cyprus Banking Sector’ Licensing and Supervision. Available at http://www.centralbank.gov.cy/nqcontent.cfm?a_id=12561&lang=en, accessed 10 April 2017.

Central Bank of Cyprus, https://www.centralbank.cy/en//financial-stability/macroprudentialstrategy, accessed 10 December 2016.

Chancellor of the Exchequer, George Osborne (2011 June 15) Speech at the Lord Mayor’s dinner for bankers and merchants of the City of London, Mansion House. Available at https://www.gov.uk/government/speeches/speech-by-the-chancellor-of-the-exchequer-rthon-george-osborne-mp-at-the-lord-mayors-dinner-for-bankers-and-merchants-of-thecity-of-london-mansi, accessed 10 December 2016.

Commission White Paper, ‘Completing the internal market’, COM(85) 310 final.

Cox, L., Dorudi, B., et al. (2012) ‘United Kingdom regulatory reform: emergence of the twin peaks’, Compliance Officer Bulletin, Vol. 95, pp. 1-33.

Cyprus Ministry of Energy, Commerce, Industry and Tourism (n.d.) ‘Cooperative Societies' Supervision and Development Authority’. Available at http://www.mcit.gov.cy/mcit/mcit.nsf/dmlinspection_en/dmlinspection_en?Open Document, accessed 10 December 2016.

Cyprus Ministry of Finance (2013 March 18) ‘Agreement on granting financial aid to the Republic of Cyprus’. [in Greek]. Available at http://mof.gov.cy/assets/modules/wnp/articles/201610/48/docs/symfoniaparahorisisoikvoith16_3.pdf, accessed 10 December 2016.

Cyprus Securities and Exchange Commission. Available at https://cysec.gov.cy/el-GR/home/, accessed 10 December 2016.

Directorate-General for Economic and Financial Affairs (1990) ‘One market, one money: An evaluation of the potential benefits and costs of forming an economic and monetary union’.

EU Commission (2015 June 29) Statement on behalf of the European Commission by Jonathan

Hill on the capital controls imposed by the Greek authorities. Available at http://europa.eu/rapid/press release_STATEMENT-15-5271_en.htm, accessed 10 December 2016.

Eurogroup (2013 March 16) Eurogroup Statement on Cyprus. Available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/136190.pdf, accessed 10 December 2016.

Eurogroup (2013 March 25) ‘Eurogroup Statement on Cyprus’. Available at http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/136487.pdf, accessed 10 December 2016.

Eurogroup (2015 August 14) ‘Eurogroup Statement on the ESM programme for Greece’. Available at http://www.consilium.europa.eu/en/press/press-releases/2015/08/14-eurogroupstatement/, accessed 10 December 2016.

Europe Economics.com (2014, June 6) EU Financial Regulation: A Report for Business for Britain, Europe Economics http://forbritain.org/EUFinancialReg.pdf, accessed 10 December 2016.

European Banking Authority (2011) ‘2011 EU-wide stress test results’. Available at http://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing/2011/results, accessed 10 December 2016.

European Commission (2013) ‘Proposal for a Regulation establishing uniform rules and uniform procedures for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation 1093/2010,’ COM(2013) 520.

European Commission (2010) ‘Corporate Governance in Financial Institutions: Lessons to be drawn from the current financial crisis, best practices’ SEC(2010) 669.

European Commission (2014) ‘Banking Union: restoring financial stability in the Eurozone’. Available at http://europa.eu/rapid/press-release_MEMO-15-6164_en.htm?locale=en, accessed December 2016.

European Commission (2014b) ‘Proposal for a Regulation of the European Parliament and of the Council on structural measures improving the resilience of EU credit institutions,’ COM/2014/043 final - 2014/0020 (COD).

Euro Summit (2015 July 12) Euro Summit Statement. Available at http://www.consilium.europa.eu/en/press/press-releases/2015/07/12-euro-summit-statement-greece/, accessed 10 December 2016.

Federal Deposit Insurance Corporation (2014) History Timeline. Available at http://www.fdic.gov/about/history/timeline/1920s.html, accessed 10 December 2016.

Financial Crisis Inquiry Commission (2010), Preliminary Staff Report: Too-Big-to-Fail Financial Institutions. Available at http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/2010-0831-Governmental-Rescues.pdf, accessed 10 December 2016.

Financial Crisis Inquiry Commission (2011) The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, Washington DC: Government Printing Office.

Financial Services Authority (2009) The Turner Review: A regulatory response to the global banking crisis, London: FSA.

Freeland, Christina (2010 December) ‘Thomson Reuters Newsmaker – Dominic Strauss-Kahn’. Available at http://live.reuters.com/Event/TRNewsmaker?Page=0, accessed 10 December 2016.

Georgiou, G.C. (2013) ‘Cyprus’s Financial Crisis and the Threat to the Euro’, Mediterranean Quarterly, Vol. 24, No. 3, pp. 56–73.

Group of Twenty Working Group (2009) ‘Enhancing Sound Regulation and Strengthening Transparency’. Available at http://www.gfintegrity.org/storage/gfip/documents/g20%20working%20group%201%20report.pdf, accessed 10 December 2016.

Hinarejos, A. (2014) 'Economic and Monetary Union' in Integration', in Barnard C. and Peers S. (eds), European Union Law, USA: Oxford University Press, pp 567–590.

HM Treasury (2011), A new approach to financial regulation: building a stronger system, London: HM Treasury. Available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/81411/consult_newfinancial_regulation170211.pdf, accessed 10 December 2016.

Independent Commission on the Future of the Cyprus Banking Sector (October 2013) Final Report and Recommendations, Nicosia: Central Bank of Cyprus.

International Monetary Fund (2009) ‘IMF Focus: Crisis Creates Testing Times for Europe’s Policymakers’, IMF Survey Magazine, http://www.imf.org/external/pubs/ft/survey/so/2009/CAR061009A.htm (accessed 10 December 2016).

Ioannou, C. and Emilianides, A. (2013) ‘Πώς και γιατί η Κύπρος βυθίστηκε στην κρίση. Τα πραγματικά αίτια και οι ευθύνες’, Foreign Affairs, The Hellenic Edition. Available at http://www.foreignaffairs.gr/articles/69205/xristina-ioannoy-kai-axilleas-aimilianidis/pos-kaigiati-i-kypros-bythistike-stin-krisi?page=show, accessed 10 December 2016.

Kaufman, G.G, (2004) ‘Too big to fail in U.S. banking: Quo vadis?’ in Benton E. Gup (ed) Too Big to Fail: Policy Practices in Government Bailouts, London: Praeger Publishers, pp.153–167.

Kay, J. (2009) ‘Too big to fail is too dumb an idea to keep’, Financial Times, 28 October 2009. Available at http://www.johnkay.com/2009/10/28/too-big-to-fail-is-too-dumb-an-ideato-keep, accessed 10 December 2016.

King, M. (2009 October 29) Speech by Mervyn King, Governor of the Bank of England, to Scottish business organisations, Edinburgh. Available at http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech406.pdf, accessed 10 December 2016.

Levine, R. (2002) ‘Bank-based or market-based financial systems: Which is better?’ NBER Working Paper Series, Working paper 9138. Available at http://www.nber.org/papers/w9138, accessed 10 December 2016.

Ministry of Finance (n.d.) ‘Insurance Companies Control Service: Superintendent of Insurance’. Available at http://mof.gov.cy/en/directorates-units/insurance-companies-control-service, accessed 10 December 2016.

Ministry of Labour and Social Insurance (n.d.) ‘Occupational Retirement Benefit Funds’, Available at http://www.mlsi.gov.cy/mlsi/sid/sidv2.nsf/page43_en/page43_en?OpenDocument, accessed 10 December 2016.

Mülbert, P.O. (2009) ‘Corporate Governance of Banks’, European Business Organization Law Review, Vol. 10, No.3, pp. 411–436.

O’Brien, J. (2010) ‘The Future of Financial Regulation: Enhancing Integrity through Design’, Sydney Law Review, Vol. 31, No. 1, pp. 63–85.

OECD (2009) Corporate Governance and the Financial Crisis: Key Findings and Main Messages. Available at http://www.oecd.org/corporate/ca/corporategovernanceprinciples/43056196.pdf, accessed 10 December 2016.

Orphanides, A. and Syrichas, G. (2012) The Cyprus Economy, historical review, prospects, challenges, Central Bank of Cyprus, Nicosia: Central Bank of Cyprus. Available at http://www.centralbank.gov.cy/media/pdf/CBC_book_EN.pdf, accessed 10 December 2016.

Perry, J., Moulton, R., Barwick G., Small R., Green J., Kay N. (2011) ‘The new UK regulatory landscape’, Compliance Officer Bulletin, Vol. 84, pp. 1-33.

President of the European Council (2012 June 26) ‘Towards a Genuine Economic and Monetary Union’. Available at: http://www.consilium.europa.eu/en/workarea/downloadasset.aspx?id=17220, accessed 10 December 2016.

Snell, J. (2014) 'The Internal Market and the Philosophies of Market Integration' in Barnard C. and Peers S. (eds), European Union Law, Oxford: Oxford University Press, pp. 300–324.

Teakdong, K., Bonwoo, K. and Minsoo, P. (2013) ‘Role of financial regulation and innovation in the financial crisis’, (2013) Journal of Financial Stability, Vol. 9, No. 4, pp. 662–672.

The de Larosière Group (2009) The Report of the High-Level Group on Financial Supervision in the EU. Brussels: European Union.

Tomasic, Ro. and Akinbami, F. (2011) ‘Towards a new corporate governance after the global financial crisis’, International Company and Commercial Law Review, Vol. 22, No. 8, pp. 237–249.

Treanor, J., Smith, H. and Moulds, J. (2013), ‘Cyprus banks reopen – but stock exchange will remain closed’, The Guardian. Available at http://www.theguardian.com/business/2013/mar/28/cyprus-reopen-banks-stock-market-closed, accessed 10 December 2016.

Walker, G.A. (2010) ‘Basel III Market and Regulatory Compromise’, Journal of Banking Regulation, Vol. 12, No. 2, pp. 1–5.

Walker, Sir D. (2009) A review of Corporate Governance in UK Banks and Other Financial Industry Entities, London: HM Treasury.

Wall, M. and Collins, S. (2009) ‘Change to Cuts Strategy Ruled Out as Protests Seek “Fairer” Way’, Irish Times (Dublin), 7 November 2009.

White, W.R. (2014) ‘The Prudential Regulation of Financial Institutions: Why Regulatory Responses to the Crisis Might Not Prove Sufficient’, OECD Economics Department Working Papers, No.1108, OECD Publishing pp. 1–45.

Yan, M., Hall, M. J. B. and Turner P. (2012), ‘A cost-benefit analysis of Basel III: Some evidence from the UK’, International Review of Financial Analysis, Vol. 25, pp.73–82.
Section
Articles