ATHENS -- Amid draconian security, Cyprus on Thursday braced for a stampede of customers and a potential drain in deposits as the tiny island opened its banks for the first time in nearly two weeks, after shutting them down to avert massive outflows of cash while a controversial bailout was negotiated.
Banks opened at noon, operating for six hours under strict controls ordered by the country's central bank to contain fears of a flight of capital that could reach $30 billion.
A ubiquitous police presence underscored those fears. From daybreak, scores of armed guards were seen fanning across the capital, Nicosia, keeping watch on anxious depositors who calmly stood in long lines outside banks hours before the midday opening.
To meet depositors’ demands and to be sure that enough cash was on hand, the European Central Bank sent a special transport aircraft to Cyprus with a cargo of $6.3 billion, according to local media.
Television images showed a convoy of red, green and white container trucks pulling up inside the compound of the central bank in Nicosia, to prepare for the bank openings. Helicopters hovered overhead, and elite guards armed with submachine guns kept watch.
Although the Frankfurt-based European Central Bank did not comment on reports that it had sent money to the Mediterranean island, officials said privately that the institution would keep stocking Cyprus with cash.
Fears of a potential run on banks and a renewed economic crisis in Europe stoked investors’ concerns, with shares dropping in Asian markets and the euro currency sagging in early Thursday trading.
Strict capital controls decreed by Cyprus' Finance Ministry late Wednesday limit cash withdrawals to $383 per person each day. A cap of $6,300 was imposed on transactions with other countries, as was a ban on cashing checks and terminating fixed-term cash deposits before their maturity date.
Cypriot finance officials insisted that the controls will be in force for seven days. Economists were skeptical.
"This is a typical set of exchange-control measures, more reminiscent of Latin America or Africa," said Bob Lyddon, general secretary of the international banking association IBOS.
"There is no way these will only last seven days," he said. "These are permanent controls until the economy recovers."
With fewer than 1 million people and an economy about the size of Vermont, Cyprus has about $88 billion in its banks -- a vastly out-sized financial system, eight times that of its economic output. The sector took a major hit after bond investments in Greece went sour because of that country's own financial crisis.
Earlier this week and after weeklong talks, Cyprus agreed on a $20.5-billion bailout from its European peers and the International Monetary Fund, provided savers chipped in with a $7.5-billion bail-in from levies on bank accounts over $130,000.
Under the same deal, the island’s two biggest and most indebted lenders will face a rigorous restructuring scheme that will shrink the island’s banking sector and cost thousands of jobs, pushing Cyprus deeper into recession.