ECB preserves banks’ cash cushion of 3.5 billion euros

The European Central Bank has assented to another marginal rise in the emergency cash available to Greek banks, as it raised the limit of the Bank of Greece’s emergency liquidity assistance (ELA) mechanism by 600 million euros on Thursday, intended solely to avert any unexpected liquidity problems. At the same time the state is hoping to draw 2 billion euros from the cash reserves of various state entities.

According to sources, the above developments are connected: The 600 million added to the previous 68.8-billion-euro limit – raising the ELA ceiling to 69.4 billion – takes the safety cushion available to local lenders to some 3.5 billion euros, as the rest has already been drawn.

State entities have deposits adding up to 3-3.5 billion euros at commercial banks. If the managements of those entities (corporations or social security funds) were to decide to invest their cash reserves in state debt, they would immediately generate a capital flight from the credit system. This is where the ELA cushion of 3.5 billion euros comes in, as it could cover any liquidity drop at banks resulting from the decisions of state entity managers.

Finance Ministry officials estimate that even if state entities decide to invest in state debt after the amendment submitted in Parliament that protects their rights, their investment will not concern the entire amount of their cash. Therefore they expect that out of 3.5 billion euros in deposits, some 2 billion could be invested in government paper in order to bolster the state’s liquidity.

Bundesbank President Jens Weidmann spoke on Thursday on Greece’s liquidity, saying that the governments and national parliaments of the eurozone will have to decide whether they are willing to further increase their exposure to Greece and cover the Greek state’s funding requirements. He added that “this is less than ever the work of the Eurosystem” and that the ECB is not to blame for the fact that Athens has no access to money markets.

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