ECONOMY

Greek banks plummet as ECB restricts direct access to funds

Greek banks plummeted in Athens trading Thursday after the European Central Bank restricted direct access to its funding lines, forcing the nation’s lenders to rely on emergency funds.

The FTSE/Athex Banks Index fell 23 percent as of 10:41 a.m in Athens, led by declines in National Bank of Greece SA, which fell as much as 26 percent, and Piraeus Bank SA, which dropped 27 percent.

The ECB’s decision, announced Wednesday in Frankfurt, will raise financing costs for Greek banks and stiffen oversight by the central bank. A Bank of Greece spokesman said that liquidity will continue as normal, as existing ECB financing will be converted into Emergency Liquidity Assistance, or ELA.

“The practical impact of the action is small,” Alberto Gallo, head of European macro credit research at London-based Royal Bank of Scotland Group Plc, said by e-mail. “Greek banks will still have ELA access, which the ECB is unlikely to withdraw.”

Still, “the ECB is sending a signal: that they will not be there at all conditions,” he said.

Under the measure announced by the ECB Wednesday, the junk- rated collateral offered by Greek banks to the central bank in return for financing will no longer be accepted. ELA is extended by a national central bank of the euro area, in this case the Bank of Greece, to solvent lenders “facing temporary liquidity problems, without such operation being part of the single monetary policy,” according to the European Central Bank’s website.

ELA liquidity carries an interest rate of 1.55 percent, versus 0.05 percent for regular ECB financing, the Governor of the Bank of Greece Yannis Stournaras said in November.

Greek lenders fell to a record last week, losing more than 8.6 billion euros of market value in the three days ended Jan. 28. Since then, they had rebounded as of Wednesday, pushing the benchmark ASE Index to its highest level of the year.

“The ECB announcement adds a new element of volatility to Greek asset values near term,” Citigroup Inc. analyst Ronit Ghose wrote in a note to clients.

[Bloomberg]