The parliament of Cyprus on Thursday rejected legislation bringing its co-operative banks under the direct supervision of the central bank, a condition in a bailout programme the island agreed with international lenders.
A finance ministry source said negotiations were under way in parliament on Thursday night to broker a deal and that the legislature's approval on the matter was "crucial" to Cyprus receiving the next aid instalment of 1.5 billion euros ($1.97 billion).
The vote, with a narrow majority of opposition parties and independent members of parliament, was a setback to plans to use the 1.5 billion euros, a second tranche from international lenders, to boost the co-ops, which are small credit institutions.
Cyprus and lenders from the International Monetary Fund and the European Commission agreed on a 10 billion euro bailout to the island in March. ($1 = 0.7623 euros)