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LONDON (Reuters) - Thousands of depositors in Britain's branch of Laiki Bank have been transferred to Bank of Cyprus UK and won't have to surrender any of their savings to help bail out the Cypriot government.
The move was overseen by Britain's new financial regulator, the Bank of England's Prudential Regulatory Authority, on its first official day of operation.
Laiki UK's 15,000 deposit accounts will be transferred to Bank of Cyprus UK and will not be subject to a levy or "haircut" or other restrictions placed on banks in Cyprus, Bank of Cyprus said in a statement.
Laiki Bank UK is a branch, meaning Britain was not obliged to protect its depositors, unlike Bank of Cyprus UK, which as a subsidiary is regulated in Britain and has more autonomy from the parent group.
This means savings below 85,000 pounds are covered by Britain's compensation scheme if a bank runs into trouble.
Bank of Cyprus said it has received an equivalent amount in cash from Laiki to cover the liability for the deposits.
Britain was keen to clarify protection for savers in Cypriot banks to avoid a repeat of a 2008 row with Iceland when Landsbanki collapsed. Britain paid out billions of pounds to UK savers, which is being repaid by Iceland.
Britain's compensation scheme protection of up to 85,000 pounds is equivalent to the 100,000 euro (84,807.29 pounds) guarantee in Cyprus and across the EU. The Laiki UK customers have an average of 18,000 euros in their deposit accounts.
The PRA said all Laiki Bank UK customers will be able to access funds as normal.
All of Laiki Bank UK's loans, including mortgages, credit cards and overdrawn accounts, will be transferred to Bank of Cyprus Public Co. Ltd, the parent group in Cyprus.
The BoE said the switch follows a decree issued by the central bank of Cyprus and the deposits in Laiki are being transferred in full, meaning there are no deductions.
Under an international bailout agreement for Cyprus, Cyprus Popular Bank, parent of Laiki, is being wound down.
Depositors with savings of more than 100,000 euros at Cyprus Popular Bank and Bank of Cyprus held at Cypriot branches will lose at least 30 to 40 percent to help pay for the bailout.
(Reporting by Huw Jones, additional reporting by Steve Slater; Editing by Ruth Pitchford)