UK savers will escape Cyprus government raid on savings in stricken Laiki Bank
UK customers are to be shielded from a Cyprus government raid on savings in stricken bank Laiki.
Around 15,000 savers in the UK arm of Laiki will see their deposits protected under British rules and will escape the Cyprus banking levy - but those with overdrafts will remain with Laiki and have their accounts frozen.
New City watchdog the Prudential Regulation Authority - which replaced the FSA this week - said around £270million in deposits from Laiki Bank UK had been transferred to Bank of Cyprus UK and would come under the UK compensation scheme guaranteeing up to £85,000 per saver.
Euro crisis: Laiki depositors in Cyprus could be forced to accept losses of up to 60 per cent under the European bailout deal to save the country from bankruptcy
It said the agreement does not affect access to bank accounts so all customers who had an account with Laiki Bank UK will be able to access funds as normal and do not need to do anything.
The PRA has been working on plans to protect UK branch customers of Laiki after Cypriot authorities announced it would shut and merge with Bank of Cyprus.
It is feared that depositors in Cyprus will be forced to accept losses of up to 60 per cent under the European bailout deal to save the country from bankruptcy.
Deposits of more than €100,000 (£85,000) at the Bank of Cyprus will lose 37.5 per cent under a bank levy being imposed across the country, but a second raid on these accounts could see depositors lose up to 22.5 per cent more to prop up the bank's reserves.
Chancellor George Osborne said last week in a hearing with MPs on the Treasury Select Committee he wanted a solution for customers of the UK arm of Laiki.
Laiki operated as a 'branch' in the UK, which meant customers would have been subject to the levy, but today's transfer will see them become part of Bank of Cyprus UK - a UK subsidiary fully regulated under British rules.
The PRA said customers in overdraft will need to contact Laiki Bank UK, while those who had an overdraft facility but were in credit will need to contact Bank of Cyprus to apply for new overdraft arrangements.
Mortgage borrowers and loan customers will be transferred to Bank of Cyprus in Cyprus and will be contacted in due course, but should continue making repayments as normal, it added.
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