THE CABINET yesterday approved legislation to aid banks in the event of a crisis and to create a financial stability fund.

The bills, which will soon be sent to parliament for discussion and ratification, look to give the Cabinet institutional powers to help banks out in the event of a crisis while also creating a financial stability fund.

Government spokesman, Stefanos Stefanou said that the passing of the bills would go a long way to consolidating Cyprus’ ability to respond to financial developments both on a European and an international level and ensure its financial stability.

“These bills create the necessary institutional and legal frameworks to strengthen Cyprus’ position to support our financial system if needed,” Stefanou said.

If passed, the first would enable the government to bolster the banks’ liquidity through loans, guarantees, capital or even their buy out.

Stefanou clarified that this would only be done after consultation with the Central Bank.

In the case of a total buy out, this intervention would turn banks into the hands of the public sector.

The establishment of an independent financial stability fund would seek to improve the existing management framework by supporting and consolidating credit institutions.

Stefanou said that the legislation was designed by the Finance Minister, Kikis Kazamias and central bank chairman, Athanasios Orphanides.

Current EU talks on possible trimming of the Greek debt by up to 60 per cent are being monitored closely by the government and banks alike due to the knock on effects on the Cyprus economy.

The Banks Association yesterday voiced its concerns over the vagueness of the bills on the circumstances that would activate state intervention while the time frame of the intervention is unclear.

However chairman of the association, Michael Kammas, said the banks agreed in principle with the adoption of the bills.

“We recognise that the bills were drafted on suggestions from the International Monetary Fund (IMF) and the European Committee and look to boost confidence and the financial stability of the system” said Kammas.

He said that certain provisos in the legislation were in need of amendments, and could not be accepted when considering the manner in which other European countries were trying to guard themselves from the financial crisis.

“The bills will be in parliament soon, and we will have the opportunity to evaluate all the details, voice our concerns and present our suggestions,” Kammas said.

Stefanou said that development in the eurozone rendered the bills a necessity and that deliberation with the banks would be made in parliament.

“The legislation’s key goal is to prepare Cyprus to face any possible scenario,” he said.