Banks in Cyprus Remain Closed After Bailout

March 26,2013

Depositors with more than $130,000 in Cypriot banks could see about 40 percent of their deposits turned into bank shares, the country's finance minister has warned. The news comes after Cyprus struck a deal with the European Union and the International Monetary Fund in which the small Island nation will get $13 billion in aid. To earn that money, though, Cyprus has to overhaul its banking sector and analysts say the result could be crippling.

On March 15 banks in Cyprus closed their doors , and they have not yet re-opened. The trickling cash flow already has taken its toll.

Small businesses say they are doing very little trade, and some say they already have had to lay off employees.

But the worst maybe is still to come, though, because the deal struck with international lenders aims to shrink the Cypriot banking sector, which is about eight times the size of the economy.

The country's biggest lender, the Bank of Cyprus, will be radically restructured and Laiki Bank, the second largest, is set to close. The bank employs 8,000 people - a massive blow for a small country with a population of less than 1 million.

James Ker-Lindsay, Cyprus expert at the London School of Economics, said the whole economy will be affected.

"This deal has the potential to be completely devastating for Cyprus. The banks are a major part of the Cyprus economy," said Ker-Lindsay. "There is going to be a lot of businesses which will have lost money in all of this. This will trickle down through the economy. It will be absolutely enormous, the effects of this.