Banks to reopen in Cyprus today but withdrawals to be restricted

Cypriots are expected to descend in their thousands on banks in the country, which will reopen today. However, transactions would be subject to tight controls to prevent depositors from emptying out their accounts in a potentially catastrophic bank run.

The east Mediterranean island fears a stampede at banks that will reopen almost two weeks after the government's successful negotiation of a €10-billion bailout package with the EU to escape a financial meltdown.

The rescue deal comes as the first instance of the EU moving to impose losses on bank depositors, in anticipation of panic cash withdrawals.

According to authorities the strict rules imposed to prevent a bank run would be temporary.

However, according to economists they would be difficult to lift as long as the economy continued to be in a crisis.

Last night, container trucks loaded with cash pulled up inside the compound of the central bank in the capital Nicosia in preparation of the opening of the Cyprus central bank Reuters cited a source as saying, as a helicopter hovered overhead and police with rifles were stationed around the compound.

Cash for all banks, in Cyprus, is routed through Cyprus's central bank which received supplies the European Central Bank in Frankfurt. According to officials, enough funds would be on hand to meet demand.

Meanwhile, George Osborne, the chancellor, pledged that the UK government would help the 13,000 UK-based customers of the Cypriot Popular Bank, known as Laiki in Greek, who faced loss of their entire savings in excess of the €100,000 threshold following its closure this week.

He said the government was engaged in negotiations to try to avoid the branches in the UK becoming sucked into the Cypriot resolution process.

He added that another € 13 million had been flown to Cyprus to the 3,000 military personnel based there.

Attacking the eurozone over its slow handling of a crisis which started a year ago he said, it had not been well handled over the last 10 days.

Meanwhile, the Department for Work and Pensions, said, British pensions would not be paid into Cypriot bank accounts for the foreseeable future, and advised expats to instead open UK accounts.

Cypriot finance minister, Michael Sarris, admitting that capital controls were "not a good idea" as they threatened to strangle the economy, insisted however, that they were necessary after the eurozone demanded that banks in Cyprus be restructured as a condition for €10 billion bail-out.

He said Cyprus was faced with an emergency, and the restrictions were an unprecedented experience, even as he confirmed that depositors at the Bank of Cyprus with over 100,000 euros, could have at least 40 per cent of their funds forcibly converted into bank shares worth much less than the value of their savings.