Greek markets slide on reports ECB planning to restrict bank funding

Greek bank shares slid and the country’s government bond yields rose on Tuesday as more details emerged on a European Central Bank proposal to increase the insurance it would demand in return for funding to the banks.

An index of Greek bank shares fell 5.5 percent, pulling down Athens’s main stock index.

Ten-year Greek government bond yields rose 24 basis points to the day’s high of 13.60 percent, while two-year yields climbed to near 30 percent.

Bloomberg reported on Tuesday that ECB staff have prepared a proposal to increase the haircut on the value of securities that Greek banks offer in return for emergency liquidity.

Increasing this haircut would effectively reduce the value of security that Greek banks can offer and consequently the amount of Emergency Liquidity Assistance they can draw down.

Any default by Greece would force the ECB to act and possibly restrict Greek banks’ crucial access to emergency liquidity funding, ECB officials previously told Reuters.

“Reports this morning are suggesting that the ECB is looking into reducing its ELA for Greek banks, a move that would make an already dire situation for the Greek financial institutions much worse,” said Connor Campbell, analyst at Spreadex.

The euro was down 0.6 percent against the dollar at $1.0670, its second straight day of losses. It was also weaker against the yen at 127.60 yen while against the Swiss franc it was down 0.2 percent at 1.0254 francs not far from its lowest in nearly three months.


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