BoG chief: Deposits safe, no bank run after ECB move

Bank of Greece Governor Yannis Stournaras on Thursday assured that Greek banks are perfectly safe and there is no problem with their cash flow in the wake of the European Central Bank decision to cease accepting Greek bonds as collateral for the supply of liquidity to lenders as of next Wednesday.

Stournaras remarked that yesterday was a quiet day for deposits and stressed that Frankfurt’s decision will be revoked once an agreement is reached with the new government.

Bank officials pointed out that the ECB move will only have a limited impact on the local credit sector as its cash flow is secure. Notably the ECB yesterday approved the supply of 60 billion euros in liquidity from the Bank of Greece through the emergency liquidity assistance (ELA) system.

Therefore, the same officials added, the decision regarding Greek bonds won’t change anything for depositors even if it does generate some concern among citizens.

After the “temporary” exclusion of Greek bonds, ELA constitutes the sole source of liquidity for domestic lenders, with the exception of the European Financial Stability Facility (EFSF) bond holdings, which are accepted by the ECB. Bankers say that lenders’ confinement to ELA is not the end of the world, and point back to 2012 when local banks were in quarantine and the entire cash flow from the Eurosystem had arrived through ELA and amounted to 130 billion euros in June 2012.

They add that the transfer to ELA will have absolutely no consequences for account holders. They do remind, however, that ELA comes at a much greater cost, with an interest rate of 1.55 percent against the 0.05 percent of the ECB funding. The higher rate will have an impact on banks’ profits before provisions and therefore on their capacity to handle nonperforming loans.

Crucially, if a bank is unable to repay the cash it has withdrawn from ELA, the debt will burden the Bank of Greece and therefore be added to the national debt.