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1.0 The structure of Cyprus banking crisis
Cyprus banking crisis was triggered by Greece debt crisis and European debt crisis deepening. The crisis eventually turned into Cypriot financial crisis in 2012, which not only severe impacted Cypriot economy, but also brought a complex issue to Europe. The Cyprus banking crisis is not only as a result of Greece debt crisis, but also the characteristics of Cyprus and its banking system.

First of all, Cyprus has been becoming one of most popular offshore financial centers since the 1980s, because there was completely tax exemption on capital gains. Also, Cypriot offshore corporations had been only charged about 10 percent tax on their corporate profits and foreign investors did not need to pay tax when they receive dividend payments and interest payments in Cyprus (James 2013). Second, Cypriot banking sectors allowed anonymous foreigners to make investment and deposit their funds in Cyprus. As a result, Cyprus had been seen as tax haven and money laundering hub by most foreign investors (Hazou 2013). Over this time, the economy of Cyrus was growing rapidly, because the countries received a large amount of capital inflows from other countries, especially Russia. At the same time, the favorable domestic economy promoted the development of Cypriot banking sectors. However Cyprus also was experiencing a credit boom, because its banking sectors hold the excess deposits, which were approximately €64 billion. According to Clerides and Stephanou (2009), the domestic resident loan increased suddenly during the period of credit boom. Moreover, Cyprus has been a member state of the European Union on 1st January 2008. Foreign companies and investors found an emerging market opportunity as operating...

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...rease, Cypriot banks will generate losses from their asset accounts, and eventually impacts their capitals. During the period of Greek debt crisis, bank of Cyprus lost about €1 billion, which the Cyprus Popular bank lost over €2.5 billion and it had been forced to recapitalization (Jack 2012). As mentioned before, Cypriot banks are highly related each other, they can be seemed as too big to fail. However, Cypriot banking sectors were far beyond the control of Cypriot government. As a result, when bank of Cyprus and Cyprus Popular bank are experiencing financial stress, the bank panic certainly will spread to other banks and then ends with systemic banking crisis. After that, the collapse of credit boom and the property bubbles eventually lead to the great recession of Cypriot economy. Based on above analyses, it concludes that Cyprus banking crisis is inevitable.

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