An initial plan to seize up to 10 percent of people's bank accounts spooked depositors and was soundly rejected by lawmakers.
Earlier Monday, Cyprus' president, Nicos Anastasiades, said the central bank would impose some limits on financial transactions but assured the public the restrictions would be temporary.
An eleventh-hour deal to provide Cyprus with an international bailout was clinched in the early hours of Monday in a meeting of the 17-nation eurozone's finance ministers in Brussels.
Politicians from Europe and Cyprus had been up against a tight deadline. The European Central Bank had agreed to extend emergency funding to the country's ailing banks only until Monday unless an agreement was reached. Without a deal, Cyprus' banks would have collapsed Tuesday, dragging the country's economy down with them and potentially pushing it out of the eurozone.
Several hours after the deal was announced, the ECB dropped its threat, saying it would not object to the Central Bank of Cyprus continuing to provide emergency credit. Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks to secure the 10 billion euro ($13 billion) bailout.
Speaking about the marathon negotiations that resulted in the deal, Anastasiades said, "The hours were difficult, at some moments dramatic. Cyprus found itself a breath away from economic collapse."
The agreement, he said, "is . . . the best we could have ensured. The danger of Cyprus' bankruptcy is definitively overcome, and the tragic consequences for the economy and society are averted."