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Failing banks, bail-ins, and central bank independence: Lessons from Cyprus

Panicos Demetriades, (2018), “Failing banks, bail-ins, and central bank independence: Lessons from Cyprus”, VOX, 21 February

Europe’s new framework for resolving banks includes a ‘bail-in’ mechanism which aims to ensure that banks’ shareholders and creditors pay their share of costs, and which was first used to resolve the 2013 banking crisis in Cyprus. This column, written by the economist who was the country’s central bank governor at the time, examines the unintended consequences of the bail-in, which have proved more toxic than could ever have been imagined, and not just in Cyprus. Several euro area central banks and their governors have found themselves in the eye of political and legal storms when taking actions to resolve failing banks and/or restore stability in their banking systems.

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