The former governor of the Central Bank of Cyprus, Panicos Demetriades, who was in office during the financial crisis in 2012, discussed how and why the crisis might erupt, using the relatively small European country as an example.
According to the expert, when it comes to a financial crisis, "there are a lot of events that happen" unexpectedly.
However, "there is always a big elephant in the room that no one can see," the expert said.
Demetriades stressed that there are always two sides to the coin, and the long-lasting financial boom in Cyprus had later resulted in rapid financial downturn.
"The seeds of the crisis are always in a proceeding boom. That was the boom that was the cause of the crisis," Demetriades said.
"Unfortunately when the money is coming in very rapidly, banking risks are not managed properly, partly because people underestimate those risks," the analyst stated. "There was a business model that was attracting capital inflows. A lot of politically connected law firms played an important role in it. They were very happy with that system of relatively lax banking regulations and supervision that allowed those risks to escalate."
According to the analyst, "when it all came down crushing," it was a "big shock" for many bankers and representatives of financial institutions.
At the same time, Demetriades believes that the EU should learn from what had happened in order to avoid similar crises in the future.
In his new book "A Diary of the Euro Crisis in Cyprus: Lessons for Bank Recovery and Resolution," Demetriades discusses the euro crisis in Cyprus as well as the problems haunting the global banking system. The book will be for sale on the Springer website starting Sunday.
To learn more about Demetriades' opinion on the issue, listen to the full version of his interview with Radio Sputnik here:
