Banks spared a haircut rise for another week

It will probably be another week without nasty surprises for Greek banks after the governing board of the European Central Bank (ECB) on Wednesday decided against a bigger cut on the value of the collateral Greek lenders can use to draw liquidity from the Eurosystem.

The ECB also decided to marginally extend the limit of the cash supplied through the emergency liquidity assistance (ELA) of the Bank of Greece by 200 million euros, just as an international ratings agency warned that conditions in the local credit system are dangerously deteriorating due to the uncertainty, its outlook is negative and the threat of capital controls being imposed is growing.

According to sources, Wednesday’s meeting of the ECB board included a long and detailed discussion on the issue of the Greek collateral’s haircut but did not end in a decision. It appears that pressure for a bigger haircut to the collateral’s value was much greater than in previous board meetings, with banking sources yesterday saying that there was a marginal vote in favor of postponing a decision on the issue for one more week.

An ECB spokesman said on Wednesday that the issue of Greek banks’ collateral is under close scrutiny. Kathimerini understands that Frankfurt is examining a plan for a small increase to the haircut of the Greek collateral’s value along with an expansion to the range of assets it will accept as collateral. That way Greek banks will be able to use more assets, such as loan portfolios, in order to draw liquidity from the Eurosystem.

The ELA limit has now been extended to 80.2 billion euros, from 80 billion last week. Bank officials say that in the last few days the outpour of deposits from Greek bank accounts has abated, which is why there was no need for a greater increase to the ELA limit.

A safety cushion of 3 billion euros of unused cash has been set aside but will only be used to absorb any sudden spikes in demands for cash by Greek account holders.

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