NICOSIA, July 8 (Xinhua) -- Cyprus's parliament passed crucial legislation that shielded the eastern Mediterranean island against a possible second bailout in five years, the top lawmaker said on Sunday.
The legislation, which was passed by a majority vote after a five-hour acrimonious debate, concluded a deal merging two banks and modified the non-performing loans (NPL) framework in line with European Union directives.
Parliament's speaker Demetris Syllouris said after an unprecedented Sunday plenum meeting that the legislation passed was needed to complete the folding of the good part of state-owned Cyprus Cooperative Bank into Hellenic Bank.
It empowers the government to provide state guarantees to Hellenic Bank against unforeseen losses from its acquiring of the assets and deposits parts of Cyprus Cooperative Bank.
The alternative to passing the bank deal legislation would have been the winding down of Cyprus Cooperative Bank and probably the loss of bank deposits amounting to 6.5 billion euros (7.6 billion U.S. dollars), though a large part of it was guaranteed by the state.
Opposition DIKO party leader Nicolas Papadopoulos told parliament that the most possible development from such an eventuality would be a bailout of Cyprus for the second time in five years.
"To avoid this, my party had no other alternative but to offer its support to the government legislation to spare the people the austerity hardship of another bailout," he said.
Uncertainty over the bank deal had caused a bank run, with worried depositors withdrawing about 500 million euros over the last six banking days.
The government said that the need for the recapitalization of Cyprus Cooperative Bank forced it to sell the bank, which was taken over by the state even before the 2013 economic crisis that led to a 10-billion-euro bail-out of Cyprus and a radical resolution of the banking system involving the contraction of Cyprus's oversized banking sector.
The merging of Cyprus Cooperative Bank into Hellenic Bank brought to an end a history of over one century for the cooperative movement, a fact that was lamented by many deputies.
The cooperative movement started with a single village credit society which was set up by farmers and small businessmen as a means of doing away with loan sharks, 109 years ago.
It bloomed between 1960 and 1980, when over 300 branches had been set up and groups of local societies owned businesses for the promotion of agricultural produce by doing away with middle sellers.
However, poor management and corruption brought about the downfall of the cooperative movement.
The Cooperative Bank had the largest share of non-performing loans, amounting to 7.5 billion euros, which were purchased by the state as part of the bank deal.
Other legislation passed by parliament changed the foreclosures and insolvency framework to make it more effective.
The amended non-performing loans legislation will make it easier for banks to move against what have been branded as "strategic defaulters" who took cover behind up to now favorable legal provision to avoid repaying their loans.
The reform of the framework has been asked for by the European Union in a move to stabilize the banking system.
In exchange for votes from opposition parties, the government had to accept a law protecting loan guarantors. It also presented a plan to protect the primary residence of low income loan owners.