Financial Markets and Bank Management - Coursework Example

The banking and financial system in Cyprus is significantly large when compared to the Cypriot economy. Total asset held by the country’s banking system is close to 900% of the gross domestic product generated by the country (Stephanou, 2011a). This number is strikingly high when compared to EU and Euro zone asset acquisition of 357% and 334% respectively (Stephanou, 2011a). Even if the overseas operations conducted by the country’s domestic banks are excluded, the size of the country’s banking system will still be large thereby exceeding the gross domestic product by the multiple of 7 (Stephanou, 2011a).

Nevertheless Cyprus is not exclusive in this respect. This is precisely because a number of EU member countries have similar or larger banking system. The banking system in Cyprus grew considerably over the last decade. The underlying reason behind this rapid enlargement is the accommodation of a global environment as well as the policy enacted by regulatory authorities in the country in order to highlight them as international financial centre. It is only off late that the financial crisis-provoked deleveraging of globally active banks and delay in cross border capital flows have stopped that trend (Michaelides, 2012).

Two aspects that differentiate Cyprus from another country with a large banking system are domestically owned credit institutions such as commercial banks and cooperatives which have an instrumental role in ensuring economic stability and the country’s domestic banks which are although small in absolute terms but are considerably large as far as their asset acquisition is concerned (Milesi‐Ferretti and Tille, 2011). While the domestic owned credit institutions account for nearly 64% of the total banking system assets, the domestic owned banks own a considerable proportion of assets as a proportion of the country’s GDP (Stephanou, 2011a).

Not many European countries are