Cypriots Cast Blame as Banks Open

Capital is Surprisingly Orderly as Branches Restart; President Calls for Probe Into Economic Crisis

NICOSIA—Cyprus's banks reopened from a nearly two-week hiatus on Thursday with little sign of disorder among depositors, even as the country's politicians pointed fingers over who was to blame for the financial sector's meltdown.

Small groups of account-holders—typically numbering two dozen or less, and mostly retirees—pressed to enter the banks as they formally reopened at noon local time. Police and private security guards, under orders from Cyprus's central bank, limited entry to only a few people at a time, giving priority to seniors and leaving others waiting.

Katerina Stylianidou, 32 years old, said she searched all morning for a cash machine that would dispense the €300 ($390) daily maximum permitted under new capital-flight laws. Unsuccessful, she wound up waiting in line to enter a branch of Cyprus Popular Bank PCL, CPB.CP 0.00% the country's second-biggest lender, which will be closed under the terms of an international bailout deal sealed early Monday.

"I have bills to pay. I need the cash for just ordinary expenditures like food," she said. "Staff here say they'll only let eight people in at a time, so I think I need to be patient."

President Nicos Anastasiades on Thursday ordered the creation of a three-member committee to investigate the roots of the economic malaise engulfing the island. The committee will be chaired by three former judges from Cyprus's supreme court, including Georgios Pikis, the court's former president and a former member of the International Criminal Court in The Hague.

"They have a mandate from the president to look deeply into actions, inaction, omissions or decision that led to the present state of the economy but also particularly into the state of financial institutions like Cyprus Popular Bank," said Alexandros Sinka, international affairs secretary of the ruling DISY party.

The management of the two banks behind the country's economic troubles—Bank of Cyprus PCL BOCY.CP +3.48% and Cyprus Popular Bank—as well as the Central Bank of Cyprus should be questioned as part of the probe, said Foreign Minister Ioannis Kasoulides.

"How come the leadership of the banks, the central bank governance and the ECB could allow ELA to reach €9.2 billion?" Mr. Kasoulides told reporters, referring to the Emergency Liquidity Assistance that had kept the two banks operating as the country negotiated an international bailout over the past year. "We are to blame for sure, but why didn't the ECB cut the umbilical cord?"

A Green party lawmaker called for the resignation of central bank Gov. Panicos Demetriades, adding to the chorus of those seeking his ouster.

Mr. Demetriades, who under European Central Bank regulations can't be fired, said earlier this week that he had "no intention" of resigning, adding that this would only make matters worse for Cyprus at this moment. He couldn't be reached to comment Thursday.

In a separate potential complication for Cyprus's bailout, two prominent lawyers acting on behalf of the Church of Cyprus, a major shareholder in Bank of Cyprus, won an injunction Thursday at the supreme court in a bid to prevent their shares from being wiped out after the bank is recapitalized as part of the bailout.

The bailout deal calls for money held in bank accounts at BOC to be converted into shares in a new lender that will emerge from the restructuring of Bank of Cyprus after it takes over good assets from Cyprus Popular Bank, which is being wound down. The church is asking that its shares in the bank be treated similarly to those cash deposits and converted into shares in the new entity. The church holds 11.6 million shares in BOC, which have fallen sharply and are currently valued at about €2.3 million.

A victory by the church could set a legal precedent for other shareholders. But European and Cyprus officials said Thursday that the church would have difficulty prevailing. The injunction may delay restructuring but isn't expected to derail the bailout agreement, a finance ministry official said.

Cyprus's banks have been closed since March 16, after the government initially struck a surprise deal—since rejected—to tax bank deposits in exchange for a €10 billion bailout from euro-zone peers and the International Monetary Fund.

Terms of a revised bailout, reached early this week, now foresee the closure of Cyprus Popular and a restructuring of Bank of Cyprus.

Deposits of up to €100,000 are insured, but those with larger sums in the banks may end up taking a severe haircut—recouping only a small portion of their savings or seeing them exchanged for shares in a process that could take years.

Amid fears that nervous savers could descend on the island's banks, the government rolled out aggressive capital controls late Wednesday—the first country in the euro zone to do so—that are expected to last at least a week, and possibly much longer.

In a statement Thursday, the European Commission said Cyprus's decision to impose those controls was justified. The EU's executive arm said it would monitor the need to extend them beyond the next seven days, but added that the restrictions should be "strictly proportionate" and that "the free movement of capital should be reinstated as soon as possible in the interests of the Cypriot economy and the European Union's single market as a whole."

Mr. Kasoulides, the foreign minister, said the restrictions could be gradually lifted in coming days, and could be entirely eliminated within a month.

Many onlookers on Nicosia's streets Thursday were simply curious to see bank lines firsthand. Also represented were foreign journalists, who have swarmed to the island in recent daysto document Cyprus's financial crisis.At one bank branch along Ledra Street—the main shopping street in Nicosia's old town—at least a dozen television camera crews had set up early in the morning in anticipation of a stampede of savers that failed to materialize.

Some bystanders, taking note of the media interest, turned their anger toward the foreign journalists or singled out Cyprus's euro-zone partners, who many here feel betrayed the island by demanding unduly harsh terms in exchange for the bailout.

"The media were waiting for Cypriots smashing windows of banks. Their dreams were not fulfilled—Cypriots are decent people," said one man of roughly retirement age, who stood outside a Bank of Cyprus branch holding a leaflet that read: "Why must international media be so greedy of horror scenarios?!…Solidarity with the people of Cyprus, NOT their banks."

Some Cypriots said they would wait a few days before going to their banks.

"We came here for the action. We just want to see what's going on, but we don't plan to go to the banks today or tomorrow," said bus driver Nikos Panagiotou, 38 years old, who stopped at a Bank of Cyprus branch along with a colleague, George Nikolaou, 64, before heading to work. "We will wait for things to calm down. Our wages may be delayed for two to three days but that's OK," said Mr. Panagiotou.

Pointing at his bald head, he added: "I have already had my haircut, so I don't mind."

—Michalis Persianis contributed to this article.

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