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Cyprus investigates allegations against Central Bank governor

10 April 2013 23:55 (UTC +04:00)

Baku-APA. The Cypriot parliament on Wednesday initiated an investigation into allegations that Central Bank Governor Panicos Demetriades misled parliament, which may ultimately lead to a criminal prosecution. APA reports quoting Xinhua.

Demetriades is alleged to have misled parliament or to have withheld information concerning allegedly insufficient directions to an audit firm, Alvarez & Marsal, which had been hired to investigate the circumstances under which Cyprus banks were forced to apply for state support for recapitalization.

Cypriot politicians and parliamentarians were outraged when Alvarez & Marsal handed a three volume report on the operations of the two main banks, Bank of Cyprus and Cyprus Popular Bank, known as Laiki.

The report contained minimal information on Laiki's activities, even though it was the bank which had brought down the island's economy.

The audit firm explained that its term of reference concerning Laiki covered only a small and relatively unimportant part of its activities in Greece. Faced with public wrath, Demetriades said that the investigation into Laiki's activities would continue but he failed to explain how and when.

The decision to investigate him was taken at a special meeting of parliamentary party leaders on Wedenesday.

Under the Cypriot Constitution, the governor of the Central Bank is an independent state official who cannot be removed from his post prior to the end of his term.

President Nicos Anastasiades on Tuesday revoked the appointment of deputy Central Bank governor Spyros Stavrinakis, who had been appointed by former president Demetris Christofias just two weeks before presidential elections, which he did not contest.

However, the post to which Stavrinakis was appointed is reserved for a Turkish Cypriot under the island's federalist Constitution and President Anastasiades invoked legal reasons for terminating his appointment.

The probe against Demetriades involves a complicated procedure which may lead to either disciplinary action against him or even to criminal proceedings in case parliament decides that his action has hurt public interest.

Politicians and public opinion held him responsible for allowing Laiki bank to stay alive by injecting into it 9.2 billion euros (12 billion U.S. dollars) in emergency liquidity assistance over the last 15 months. He explained that he was directed by the government not to let the bank go down before the presidential election.

The bank was finally wound down and folded into Bank of Cyprus after BOC depositors were forced to take a loss on uninsured deposits of over 100,000 euros, which may ultimately reach 60 percent.