ELA cash grows, but till when?

The European Central Bank approved on Wednesday a further extension of the cash supplied to Greek banks via emergency liquidity assistance (ELA) by 1.4 billion euros to 76.9 billion, as private sector deposits contracted in March for the sixth month in succession, according to official figures.

The major drop in deposits, which amounted to 1.9 billion euros in March, or 1.36 percent, has further tightened liquidity conditions in the market. From 140.47 billion euros at the end of February, the balance of deposits that households and enterprises had at Greek banks dropped to 138.55 billion at end-March, the Bank of Greece announced. In total, deposits have lost 26.2 billion euros in the six months since end-September, or about 16 percent.

Bank officials see a silver lining around the significant slowdown in the deposit outflow rate in March, with the picture improving further in April. Deposits shrank by 4 billion euros in December and 12 billion in January, when the general election took place. A further 8-billion-euro outflow followed in February.

Given the constant flight of deposits, it is absolutely essential for banks to maintain their access to the ELA. This makes next week’s ECB council meeting all the more interesting, as sources in Frankfurt have made it known that unless there is some tangible progress in the talks between the government and its creditors, the European Central Bank will examine the possibility of increasing the haircut on the Greek collateral, which could even lead to a halt in Greek banks’ access to the ELA.

Last Friday ECB Governor Mario Draghi said the continued uncertainty is affecting the quality of Greek lenders’ collateral, while the stock that could be used for that purpose is shrinking, and did not rule out an increase in the collateral haircut in due course.

The ECB has so far supported the Greek system with 115 billion euros in cash, including the 76.9 billion euros available through the ELA mechanism.

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