Desperate Cypriots look to UK

Cyprus Popular Bank in the UK, also known as Laiki UK, is warning account holders in Cyprus itself that they cannot withdraw money from branches here.

Reports in Cyprus have suggested that Cypriots have been managing to extract funds from UK branches, despite the extended closure of the banking system on the island and strict limits on ATM withdrawals.

The rumours have prompted calls to the UK from Cypriots desperate to gain access to their money.

Under the terms of the Cyprus bailout, Laiki Bank in Cyprus is being closed down and customers face the loss of some or all their savings above the 100,000 euros per depositor which is guaranteed by the government.

"Money cannot get off the island," said Ruth Harvey, part of Laiki's management team in London, "It's physically impossible".

"The only people who can get access to their money are UK customers with UK bank accounts."

Laiki UK has 13,000 UK depositors and branches in London and Birmingham.

The Chancellor, George Osborne, said yesterday that the Treasury was negotiating a "British solution" to help Laiki's UK customers who are fearful that they will lose out.

Rescue for Cyprus savers in UK?

The Chancellor, George Osborne, has said that the Treasury is working on a "British solution" to the threat to 13,000 UK customers of Cyprus Popular Bank, part of Cyprus's Laiki Bank.

The customers are relying on a guarantee for around £85,000 for each account-holder's savings provided by the government of Cyprus, but they face the possibility of losing some or all of any money above that.

The Chancellor said he wanted to avoid them being "sucked in" by the resolution process to Cyprus's financial crisis and bailout.

So far the Treasury is refusing to elaborate on the Chancellor's comments, but a couple of possible options spring to mind.

One is a straightforward rescue of Laiki savers, along the lines of Icesave and London Scottish Bank in 2008. The branches would close and they'd get all their money, guaranteed by the Treasury.

The other is the forced merger of Laiki branches in the UK with branches of another bank. The most obvious is Bank of Cyprus, which is regulated in the UK and covered by the UK's Financial Services Compensation Scheme.

Such a combination might need financial help from the government, but it could be more cost-effective and convenient.

And it could be the subject of the ongoing discussions the Treasury is having with the Cyprus authorities.

Rescuing Cyprus savers in UK

Sorry to labour this point, but we could be faced with a situation shortly where the Treasury has to decide whether to rescue customers who have accounts at UK offices of Cyprus banks.

13,000 customers of the UK branch of Cyprus Popular Bank, also known as Laiki Bank, are wondering what will happen if their savings are devastated.

Their deposits are guaranteed by the Cyprus government up to 100,000 euros, or just over £85,000, so they'll be worrying about how reliable the guarantee is.

The biggest question, though is over funds in excess of £85,000, because Laiki customers in Cyprus stand to lose all or some of that.

50,000 customers of the Bank of Cyprus in the UK are in a slightly better position, because the first £85,000 of their deposits is guaranteed by the UK Financial Services Compensation Scheme.

Yet they too will be worried about their funds above the guaranteed level, despite assurances today from the Bank of Cyprus that all UK deposits are safe.

So if these Cyprus banks fail to pay back all UK deposits, will the Treasury step in - as it has before? We don't know yet.

In the autumn of 2008 the then Chancellor, Alastair Darling, guaranteed the full savings of people who had trusted their money to Icesave, part of the Icelandic bank, Landsbanki, which had gone belly up.

230,000 savers were reassured that their funds, adding up to £3.5bn, were safe. The government froze Landsbanki assets in the UK.

And when a smaller bank, London Scottish, bit the dust in December 2008, the Treasury stepped in to make sure no one lost out "to protect the interests of retail depositors and wider financial stability".

600 out of 10,000 customers had savings above £50,000, which was the deposit guarantee limit at the time. They had their money returned regardless.

Will today's Chancellor do the same for Laiki's UK savers, if they become Laiki victims?

Cyprus bank trading normally

The UK branch of the Cyprus Popular Bank or Laiki Bank, which has 13,000 customers, is maintaining its position this morning that it is "trading normally" and that it has a "sea of cash" if people want to withdraw money.

I would caution that they are having ongoing discussions with Cyprus and the UK authorities, so we should expect to be updated on the situation.

Unlike UK customers of the Bank of Cyprus, Laiki customers are not covered by our Financial Services Compensation Scheme. Their deposits are guaranteed by the government of Cyprus up to 100,000 euro.

A member of Laiki's management team in London said customers can withdraw money, as normal, as long as the terms of their accounts permit.