The two banks in the agreement, Bank of Cyprus and Cyprus Popular, are largely government-owned.
Shh. You are not supposed to know that. And you are not supposed to know that Cyprus banks were busted when the Euro socialist scumbags bailed out Greece. Cyprus tried to help their Greek compatriots out by using the Russian mob money deposits to buy Greek bonds. Then Greece was bailed out by giving the bond holders a > 70 % Devils Haircut. You are not supposed to know any of that.
This excerpt from the following linked article explains how it all went down.
Euro zone clamor drowned out Cypriot bank warnings
GORGING ON GREEK DEBT
Bulging deposit books not only fuelled lending expansion at home, it also drove Cypriot banks overseas. Greece, where many Cypriots claim heritage, was the destination of choice for the island's two biggest lenders, Cyprus Popular Bank -- formerly called Laiki -- and Bank of Cyprus.
The extent of this exposure was laid bare in the European Banking Authority's 2011 "stress tests", which were published that July, as the European Union and International Monetary Fund (IMF) were battling to come up with a fresh rescue deal to save Greece.
The EBA figures showed 30 percent (11 billion euros) of Bank of Cyprus' total loan book was wrapped up in Greece by December 2010, as was 43 percent (or 19 billion euros) of Laiki's, which was then known as Marfin Popular.
More striking was the bank's exposure to Greek debt.
At the time, Bank of Cyprus's 2.4 billion euros of Greek debt was enough to wipe out 75 percent of the bank's total capital, while Laiki's 3.4 billion euros exposure outstripped its 3.2 billion euros of total capital.
The close ties between Greece and Cyprus meant the Cypriot banks did not listen to warnings about this exposure.
The banks sold down some of their Greek holdings, but then got back into the market as yields rose. "When the Germans were selling, they were buying," said Apostolides, referring to the German banks' 2011 dumping of Greek debt.
Simona Mihai, assistant professor at Cyprus European University's banking and finance department, said the banks' exposure stemmed from a desire to help their nearest neighbors, and a belief that Greece could recover.
"People are thinking in hope," she said. "They do not see it from an analytical perspective."
A former executive of one of the banks, who did not sit on the management team and asked not to be named, said the exposure and the banks' overall expansion stemmed from greed. "To help deliver profits, they lent and lent and lent and invested in Greek bonds," the person said.
Staff, who mostly got small bonuses and annual pay rises of around three or four percent, were unhappy about the mounting exposure to Greece but powerless to stop it, the source added.
Whatever the motive, the Greek exposure defied country risk standards typically applied by central banks; a clause in Cyprus' EU/IMF December memorandum of understanding explicitly requires the banks to have more diversified portfolios of higher credit quality.
"That (the way the exposures were allowed to build) was a problem of supervision," said Papageorgiou, who was a member of the six-man board of directors of the central bank at the time.
The board, which met less than once a month, never knew how much Greek debt the banks were holding, both Papageorgiou and another person with direct knowledge of the situation told Reuters.
PERSONAL BATTLE
Papageorgiou and two other directors voiced concerns about the toothless nature of the central bank board, leading to public and bitter clashes with Orphanides, who stringently denied any lapses and said he had encouraged the banks to offload their Greek positions.
"It was very sad, he accused me of undermining him," said Papageorgiou, who left the central bank board when he was elected to parliament in 2011 for the then-ruling AKEL party, which lost power to the right wing Democratic Rally party in February 24 elections.
Orphanides also clashed with leaders of the AKEL government. Apostolides says the central bank governor had told Cyprus' president that the banks could survive a maximum 25 percent loss on their Greek bonds.
The "haircut" ultimately agreed by European leaders, including Cyprus' president Demetris Christofias, was more than 70 percent, heaping losses of 4.5 billion euros on the banks.