Cyprus finance minister Michael Sarris resigns as blame game begins

Jill Treanor guardian.co.uk, Tuesday 2 April 2013 18.30 BST

Formal investigation begins into events leading to €10bn bailout, under which savers are taking financial hit in first for euro zone

The Cypriot finance minister, Michael Sarris, quit after concluding talks with the island's international lenders. Photograph: Sergei Chirikov/EPA

The Cyprus finance minister quit on Tuesday as a formal investigation began into the events leading to the country's €10bn bailout, under which savers are taking a financial hit in a first for the euro zone.

As Michael Sarris resigned he said his previous role as chairman of Laiki, the country's second largest bank which is being wound down, was likely to be subject to scrutiny.

"I believe that in order to facilitate the work of [investigators] the right thing would be to place my resignation at the disposal of the president of the republic, which I did," said Sarris, who had been finance minister for just six weeks.

His departure was announced shortly after the Prudential Regulation Authority – the UK body set up inside the Bank of England to regulate banks – announced on its first day of operation that 15,000 account holders at Laiki bank in the UK are to escape any levy imposed on savings by the Cypriot authorities.

After a week of talks the UK arm of Bank of Cyprus has taken over £270m of Laiki UK balances. The chancellor, George Osborne, had told MPs the government was trying to find ways to stop the UK's Laiki operation being "sucked" into the Cyprus bailout.

Osborne wrote to Andrew Tyrie, the chairman of the Treasury select committee, to insist there had been "no material recourse to public funds" in the Laiki deal. Some costs had been incurred to cover fees for advisers who led discussions with the Cypriot authorities and to handle legal transfers.

Laiki operates as a "branch" in the UK, so its depositors were covered by the Cyprus government for the €100,000 (£85,000) European-wide guarantee in savings. But larger balances could have been subject to levies – possibly 60%.

However, as Bank of Cyprus UK Limited is a separately capitalised, UK-incorporated bank, it is subject to UK regulation and its customers will not be hit by any levy on accounts of any size, nor will there be any Cyprus-style capital controls limiting withdrawals to €300 a day.

Bank of Cyprus in the UK said the customers that have transferred to it "will not be subject to the imposition of any 'levy', 'haircut' or withdrawal restrictions applicable to deposits with banks in Cyprus". It was not clear how many accounts were above the €100,000 threshold.

Customers with overdrafts remain at Laiki. "These accounts are now frozen at Laiki Bank UK and customers in overdraft will no longer have banking facilities at Laiki Bank UK," the PRA said. Mortgages and loans are not transferred either.

The PRA had been working to resolve the levy threat after Osborne told MPs on the Treasury select committee last week that he wanted a solution for customers of the UK arm of Laiki.

The new finance minister of Cyprus was named as Charis Georgiades, previously the labour minister in the government of president Nicos Anastasiades.

Sarris had spent the late weeks of March travelling to Russia to try to seek aid for Cyprus, whose banks had exploded in size to eight times that of the economy, bolstered by deposits from Russians.

Cyprus finance minister Michael Sarris resigns as blame game begins | World news | guardian.co.uk