ECB warns Greek banks against buying too many T-bills

The European Central Bank is putting the brake on the purchase of treasury bills by Greek banks by advising them to be cautious in managing their liquidity.

Frankfurt’s warning to the country’s four systemic lenders arrived in Athens in the form of a document forwarded by the Single Supervisory Mechanism (SSM), which undertook the monitoring of the systemic banks in November in the context of the banking union.

In that document the SSM calls on the managers of Greek banks to be particularly cautious in the acquisition of high-risk assets. This clearly refers to Greek state treasury bills, which constitute a liquidity sources for as long as the country is unable to borrow from the money markets and is deprived of the bailout program installments.

The SSM warned banks that accumulating high-risk assets would create concerns about the quality of their financial figures. This also confirms that the monitoring mechanism is closely following developments in the country, including statements by officials of the main opposition SYRIZA party regarding the coverage of financing needs through increased short-term borrowing via T-bills.

The legal teams of local banks evaluating the document said that compliance with that recommendation is necessary. The problem is how banks will act should the next government proceed to more T-bill issues, as the lenders will find themselves in the middle of a tug-of-war situation between the ECB and Athens.

That prospect is very real, as the amount that Greek banks will be asked to contribute by March is between 4.5 and 5.5 billion euros. The state has so far issued T-bills adding up to 15 billion euros, acquired by the country’s banks. According to Greece’s bailout agreement with its creditors, out of that 15 billion euros, banks can only use up to 3.5 billion as collateral in order to draw liquidity from the ECB, as they have already done.