Euro zone clamor drowned out Cypriot bank warnings
(Reuters) - Cypriot politicians and bankers were so swept up in the short term benefits of the Mediterranean island's adoption of the euro that they ignored warnings over the resulting lending boom.
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When Cyprus joined the single European currency, Greek and other euro area deposits were reclassified as domestic, leading to billions more local lending, Pambos Papageorgiou, a member of Cyprus's parliament and a former central bank board member said.
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At the time, Bank of Cyprus's 2.4 billion euros of Greek debt was enough to wipe out 75 percent of the bank's total capital, while Laiki's 3.4 billion euros exposure outstripped its 3.2 billion euros of total capital.
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The banks sold down some of their Greek holdings, but then got back into the market as yields rose. "When the Germans were selling, they were buying," said Apostolides, referring to the German banks' 2011 dumping of Greek debt.
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The "haircut" ultimately agreed by European leaders, including Cyprus' president Demetris Christofias, was more than 70 percent, heaping losses of 4.5 billion euros on the banks.
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http://www.reuters.com/article/2013/03/22/us-cyprus-banks-idUSBRE92L0CQ20130322
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