Banks get fresh cash lifeline
The European Central Bank on Wednesday enhanced the lifeline of Greek lenders by extending the limit of the emergency liquidity assistance (ELA) available to them by 2.3 billion euros, in the biggest weekly increase since February 18. This is meant to cover the major outflow of deposits in recent days.
Once again, no change was made to the value of the Greek banks’ collateral that serves to grant them liquidity during Wednesday’s ECB executive council teleconference, but the issue will likely be revisited next week.
The 2.3-billion-euro increase does not change much in the liquidity conditions, which are at their worst point since the crisis began, but it is enough to offset the billions of euros that left bank accounts due to the extended economic uncertainty. The ELA limit now stands at 83 billion euros, from last week’s 80.7 billion, while banking sources say that the safety cushion of 3 billion euros is now intact. Crucially, besides the ELA mechanism, local banks also have an additional cash reserve that can considerably expand excess liquidity.
However, local bankers stress that unless a deal between the government and its creditors comes soon, hopefully within the week, the existing situation will be very hard to sustain.
Senior bank officials say that the balance in Greek bank accounts of households and enterprises now adds up to 128 billion euros, which is almost equal to the total liquidity the Greek credit system has drawn from the Eurosystem (83 billion euros from the ELA and 38 billion from the regular funding by the ECB).
Bankers worry that if the outflow from bank accounts continues, the imposition of capital controls will become a necessity, as the ECB is unlikely to maintain its policy that keeps the value of Greek banks’ collateral intact for now. Earlier this week Moody’s warned that capital controls could follow any further slide in deposits, which would result in significant effects on enterprises and economic activity.
