Cyprus Bailout: Potential Recourse For Lost Investments

Large depositors in Cyprus's two largest banks may consider international arbitration and appeals to the European courts to recover funds lost under the bailout plan.

On 2 April, the government of Cyprus agreed to the terms of a €10 billion bailout plan with the European Commission, the European Central Bank, and the International Monetary Fund (IMF). The agreement involves a restructuring of two Cypriot banks, tax rises, and privatisations in order to raise additional funds for the bailout. Because the restructuring is designed to protect bank customers with deposits of €100,000 or less, the proposals include a "bail in" mechanism that will likely result in substantial losses for depositors with more than €100,000 at Laiki Bank and Bank of Cyprus. International arbitration and appeals to the European courts may provide legal recourse for depositors suffering losses. Whether or not this is the case, however, is likely to vary from depositor to depositor.