ECB Says It Won’t Object to Cypriot Request for Emergency Funds

The European Central Bank said it won’t stop the Cypriot central bank from providing the island’s banking sector with emergency funding, after euro-area leaders agreed on the terms of a 10-billion-euro ($13 billion) bailout.

“The Governing Council decided not to object to the request for provision of Emergency Liquidity Assistance by the Central Bank of Cyprus, in accordance with the prevailing rules,” the Frankfurt-based ECB said in an e-mailed statement today. “It will continue to monitor the situation closely.”

Cypriot President Nicos Anastasiades agreed early this morning to shut the country’s second-largest bank and tax deposits of more than 100,000 euros after a week of negotiations that saw the parliament in Nicosia reject an earlier version. The ECB had threatened to veto emergency funds if a deal that promised fresh capital and ensured the solvency of the Mediterranean island’s banks wasn’t signed by today.

“The Governing Council also notes the agreement reached on restoring the viability of the Cypriot financial system in order to finance the Cypriot economy,” the ECB said. “Now steadfast implementation is key for Cyprus to regain access to financial markets and return to growth as soon as possible.”

Cyprus’s banks will begin to open tomorrow after a bank holiday imposed since last week. The Brussels deal will see Cyprus Popular Bank Pcl, the country’s second biggest, wound down, and the viable assets taken over by Bank of Cyprus Plc, the biggest lender.

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