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Cyprus on Thursday launched an overhaul of its banking sector to avoid financial meltdown after the European Central Bank threatened to pull the plug on emergency funding for the island's lenders.
Cypriot politicians have until Monday to approve a "Plan B" bailout deal with the European Union and International Monetary Fund or face being choked from the ECB funds, a move that would likely cause teetering banks to collapse.
Intense pressure for a deal also came from the EU, with a source warning that unless the island pushed a workable plan through parliament and restructured its outsized banking sector by Tuesday it risked expulsion from the eurozone.
But MPs adjourned an emergency session late Thursday without voting on the first two bills in a package of draft legislation drawn up by the government as part of its revised plan.
MPs said they needed more time to study the bills setting up a "national solidarity fund" and imposing capital controls to prevent a run on the banks when they reopen on Tuesday after a closure of more than a week.
The new solidarity scheme would nationalise pension funds, with bonds issued against future natural gas revenues, while the second bill would "impose temporary restrictive measures on the movement of capital".
Central bank chief Panicos Demetriades said legislation had also been drafted "relating to the reorganisation and recovery of the Cypriot banking system".
"This consolidation process will prevent the risk of bank failures and protect in their entirety all insured deposits up to the amount of 100,000 euros ($129,000)," he said as he entered the presidential palace for emergency talks with the cabinet.
The government urged against panic while it redrew the plan to resolve the chaos unleashed by an initial scheme to tax bank accounts by 5.8 billion euros ($7.47 billion) to complement 10 billion euros in eurozone and IMF loans between now and 2016.
The speaker of parliament, Yiannakis Omirou, insisted a revised levy on bank deposits was not on the table, in a move seen as placating Russians who are believed to have more than $30 billion in private and corporate cash in Cyprus banks.
Around 200 protesters outside the legislature, mostly employees of the bank in the eye of the storm, including many women, held placards reading "Hands off Laiki," and "Laiki now, what next?" of the Laiki or Cyprus Popular Bank.
Popular Bank announced a limit on withdrawals of 260 euros a day because of a "high demand for cash" from its ATMs, which were besieged by customers drawing their daily limits of up to 700 euros.
The central bank chief said that without the legislation the island's second largest bank faced the threat of immediate bankruptcy.
"With the establishment and enactment of the above legislative framework, consolidation measures will be implemented at Popular Bank, in order for it to be able to continue to provide banking services to customers, with the reopening of banks on Tuesday," said Demetriades.
Acting leader of the ruling Disy party Averof Neophytou said restructuring Popular Bank would provide 100 percent protection for 361,000 out of 379,000 account holders.
The remainder would not enjoy full protection because they exceeded the 100,000-euro limit for deposit insurance.
Neophytou said that restructuring the banks would also cut their recapitalisation needs, meaning the sum Cyprus needs to raise from its own resources in return for a 10-billion-euro bailout would be reduced from 5.8 billion euros to 3.5 billion.
The troika of lenders -- the EU, ECB and International Monetary Fund -- agreed to the 10-billion-euro bailout on Saturday on condition Cyprus come up with the rest.
Lawmakers on Tuesday flatly rejected a highly unpopular measure that would have slapped a one-time levy of up to 9.9 percent on bank deposits as a condition for the loan, leaving the government scrambling to find other ways to raise the money.
The chairman of the Eurogroup of finance ministers, Jeroen Dijsselbloem, said currency partners were willing to work with Nicosia on its new plans.
"The Eurogroup stands ready to discuss with the Cypriot authorities a draft new proposal, which it expects the Cyprus authorities to present as rapidly as possible," Dijsselbloem said after a two-hour conference call with fellow ministers.
An EU source speaking on condition of anonymity underlined that Nicosia had "until Tuesday" to broker a solid deal -- suggesting Cyprus might otherwise find itself kicked out of the eurozone.
In Moscow, Prime Minister Dmitry Medvedev slammed the European proposals to solve the Cyprus crisis as "absolutely absurd," further raising tension between Russia and the European Union.
Despite the large Russian holdings in Cyprus, the island's finance minister failed to make any progress in two days of Moscow talks to secure aid.