No end to emergency funds for Greek banks expected this week, source says

The European Central Bank is unlikely to pull the plug on emergency funding for Greek banks this week despite a standoff between Athens and its international lenders, a person familiar with the situation said.

The ECB’s Governing Council meets on Wednesday and will review the provision of so-called Emergency Liquidity Assistance (ELA) to Greek banks, as Greece is at loggerheads with euro zone governments over the future of its international bailout, which expires at the end of this month.

Provision of the ELA funding is essential to the survival of Greece’s banking sector, and hence to the country’s continued membership in the euro zone.

The ECB stopped accepting Greek bonds as collateral for funding on Feb. 5, shifting the burden of financing its lenders via ELA to Greece’s central bank. However, the ECB retains control over that ELA funding, which is subject to tight conditions.

The rules stipulate that national central banks can only grant such funding temporarily and to solvent banks.

> the person familiar with the situation said.

The ECB raised the cap on ELA for Greek banks by about 5 billion euros ($5.70 billion) to 65 billion euros last week, Greek central bank and government officials told Reuters.

The ECB added money because deposit outflows had picked up and to ensure Greek banks have liquidity while tense talks take place in Brussels, Greek banking sources said on Friday.

One banking source said recent daily outflows were in the region of 300 million to 500 million euros on average.

ECB Executive Board member Peter Praet said last week that

ELA is > and stressed the rules on provision to solvent banks should be applied. Bundesbank chief Jens Weidmann has called for >.

Taking a strict approach would leave the ECB in an awkward position if Greece failed to agree an extended, or new, bailout programme this week but nonetheless remained in the euro zone.

Greece’s existing programme runs out on Feb. 28.

Offering a carrot to Greece’s radical leftist government, Austrian central bank chief Ewald Nowotny also signalled last week that if it signed up to a reform programme, the ECB could replace this emergency funding with cheaper direct ECB finance.