The ceiling of the central bank’s emergency liquidity assistance (ELA) dropped below the 50-billion-euro level in August, as Bank of Greece data showed that the expensive cash line to commercial banks was reduced by 2.6 billion euros in end-August to 48.9 billion, from 51.5 billion in end-July.
This is a particularly positive development for the local credit sector, attributed to the improvement in liquidity conditions after the completion of the first bailout review in May. This has restored the waiver to the rule that exempts countries with junk-rated bonds from receiving cheap liquidity from the European Central Bank, thereby allowing Greek banks to tap cash at very low interest. The small increase in deposits has also helped.
In July 2015, just after the imposition of capital controls, the funding of Greek banks from the ELA mechanism had come to 90.9 billion euros. ELA is a particularly costly instrument, as it comes with an interest rate of 1.50 percent, against just 0.05 percent the basic financing of the ECB costs banks.
Still, the significant improvement of the last few months leaves no room for complacency: In end-2014, just before the election of SYRIZA and Independent Greeks into office, the exposure of Greek banks to ELA was zero, and in January 2015, when the first wave of deposit flight started, it amounted to just 5.2 billion euros.