The Bank of Greece has been forced to raise the limit of its emergency liquidity assistance (ELA) to local banks for the first time since July 2015 due to the continued outflow of deposits from the Greek credit system.
The ELA ceiling is now at 46.6 billion euros, having been raised by 400 million euros, which according to the BoG “reflects developments in the liquidity of Greek banks, taking into account deposit flows in the private sector.”
Bank officials say that the ELA increase is a strong indication that the withdrawal of deposits is continuing unabated, owing to the uncertainty generated by the delays in the bailout review. They stress that this is a particularly negative development, as the impression reaching investors abroad is that Greece has not only stopped its recovery but it is also returning to dangerous territory.
As a rule the central bank maintains a security stock. For instance, at the end of February the ceiling had been set at 46.3 billion euros, with banks having drawn 43.14 billion, so there was a cushion of 3.2 billion. The limit had declined earlier this month before being raised again now.
The Bank of Greece had been constantly reducing the limit (or keeping it steady) since July 2015 in an effort to boost optimism. By July 2015 banks had withdrawn 86.77 billion euros from the ELA, but the signing of the third bailout agreement led to a reduction of that amount by about 50 percent.