A blow against independence

Today’s resignation by Panicos Demetriades, the governor of Cyprus’s central bank, sets a worrying precedent in the euro zone. The Central Bank of Cyprus (CBC) has not issued a statement explaining the decision but it was no secret that relations between Mr Demetriades and the country’s president, Nicos Anastasiades, after he came to power early last year were not just poor but non-existent. When things go as badly wrong as they have done in Cyprus, the blame game gets going in earnest and the governor came in for his share of it.

Mr Demetriades may have made mistakes but the real damage to the Cypriot banks through their exposure to Greece including heavy losses on Greek government debt when it was restructured in early 2012 predated Mr Demetriades’s arrival since he took office in May 2012. So did the attendant failure of supervisory judgment on the part of the CBC. An independent commission that examined the causes of the Cypriot banking crisis said last year: “Although many of the necessary powers and processes existed in the CBC to supervise the banks and ensure that they were operating prudently, the record shows that banks were able to proceed without serious regulatory challenge until it was too late.”

Even so the Cypriot central bank was not alone in doing a poor job as supervisor…Continue reading

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