Cyprus will vote today on a new proposal to radically restructure its banking sector in a desperate effort to avoid default and financial collapse.

Under a proposal hammered out by Cypriot authorities and troika representatives, Cyprus's second largest bank, Laiki, may be closed and split into a "good" and "bad" bank.

The proposal could see Laiki’s “good” bank, comprising deposits of up to €100,000, merge with the country’s largest lender, Bank of Cyprus. The remaining, larger deposits would be hived off, leaving uninsured depositors facing potentially much larger write-downs than the 9.9 per cent levy proposed in the original EU-IMF deal proposed last Tuesday.

“The banking system needs restructuring, otherwise it will go bankrupt, and it needs to be done immediately,” Cyprus’s central bank governor Panicos Demetriades said, stressing that depositors below €100,000 would be protected and jobs saved.

A capital control Bill, designed to prevent an outflow of deposits from Cyprus when banks reopen, was presented to parliament last night, giving the Cypriot minister of finance and central bank governor emergency powers to “take and impose temporary restrictive measures, including restrictions on capital controls”.

This includes powers to limit withdrawals and transfers of money.

In addition, the government proposed the creation of a new investment fund, which would be funded by revenue from state assets to help the country raise a portion of the €5.8 billion demanded by the EU and IMF lenders.

Under discussion
Parliament will consider all of the proposals today. In total, seven separate Bills were under discussion in parliament last night as demonstrators protested outside against the measures.

A chant of “Oxi, No, to taxes on deposits,” ran through the throng of people pushing against riot police manning the barricades. “Hands off Laiki,” others cried, including weeping bank staff and depositors.

Banks remain shut until Tuesday and ATMs were restocked with limited money. However, rumours of Laiki’s closure prompted long queues outside some banks.