The European Central Bank announced Monday that it would continue providing emergency funding to Cypriot banks after the island nation clinched an eleventh-hour bailout deal with EU-IMF creditors.
"Today, the Governing Council decided not to object to the request for provision of Emergency Liquidity Assistance by the Central Bank of Cyprus, in accordance with the prevailing rules," the ECB said in a statement.
The ECB accelerated the crisis in Cyprus last week warning it was ready to pull the plug on emergency funding for island banks after the Nicosia lawmakers voted overwhelmingly against a first version of the bailout deal that would have included a tax on small depositors.
The latest agreement, clinched early Monday, hours before the ECB ultimatum to cut off funds, deals a major hit to the island's biggest bank, the Bank of Cyprus, and will also effectively shut down Laiki, its second-largest lender, but will not require the approval of the Cypriot parliament.
"Now steadfast implementation is key for Cyprus to regain access to financial markets and return to growth as soon as possible," the ECB said.
The continuation of emergency lending by the ECB helps allow Cypriot banks -- except for its two biggest lenders -- to reopen on Tuesday after a 10-day lockdown for fear of a run on deposits.
Several Cypriot banks are completely dependent on the ECB's emergency funding programme in order to stay operational, lacking the collateral necessary for standard ECB financing.