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ARTICLE · 12 APRIL 2010

EU Commission Approves Cyprus Bank Liquidity Scheme

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The European Commission has approved the Cyprus government’s plan to use special government bonds to reinforce stability in financial markets and mitigate the effects of the current financial downturn under EC Treaty state aid rules.

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The European Commission has approved the Cyprus government's plan to use special government bonds to reinforce stability in financial markets and mitigate the effects of the current financial downturn under EC Treaty state aid rules. The Commission found the measure to be in line with its Guidance Communication on state aid.

Under the scheme, Cyprus will issue up to €3 billion in special government bonds that it will lend to credit institutions to use as collateral to obtain liquidity from the European Central Bank (ECB) and on interbank markets. The credit institutions are to use the liquidity raised for housing loans and loans to SMEs on competitive terms.

The bonds will pay no interest and will have a maximum maturity of three years. They will be lent to eligible credit institutions against collateral and the payment of a fee. The scheme will be open to solvent credit institutions incorporated in Cyprus, including subsidiaries of foreign credit institutions.

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