Cash flow not a problem unless there is a rift, bankers argue

Senior credit sector officials say local banks are not suffering any cash flow problems at the moment, although they do warn that a clash with the country’s eurozone peers would generate serious consequences for the economy very swiftly. At the same time European Central Bank officials point to the fact that emergency liquidity assistance (ELA) only concerns extraordinary situations and cannot be used to fund countries.

Greek bankers say the rules are clear: As long as banks have collateral, and given their strong capital base, there is no issue of their being cut off from the liquidity supplied by the ELA mechanism. They note that the dependence of domestic lenders on the Eurosystem cash flow, which today amounts to 80 billion euros, is far below the 142-billion-euro level seen in June 2012.

“Given that Greek banks are solvent, as certified by the recent ECB stress tests, I do not believe there is any problem concerning access to Eurosystem liquidity,” a senior bank official told Kathimerini.

The same official did acknowledge the danger – if there is a rift between the government and its creditors – that banks may have accessing the liquidity mechanisms, with an immediate as well as dramatic impact on the credit system and the economy in general.

According to banks the bulk of the ELA recently approved by the ECB – amounting to 10 billion euros – has already been absorbed and it is possible that the Bank of Greece will table a request to Frankfurt that the ELA ceiling be raised.

ECB board member Peter Praet said on Tuesday in London that ELA is no more than an emergency mechanism which is approved only when there are reliable prospects. He noted that the mechanism concerns the coverage of short-term needs and that it is important it serves as a funding bridge toward achieving another target.