Two Greek Banks Request Emergency Liquidity Assistance

Two major Greek banks have submitted requests to the Bank of Greece for cash via the emergency liquidity assistance (ELA) system on Thursday, according to Kathimerini daily.

The move of the two banks came after the pressing liquidity conditions resulting from the increasing outflow of deposits as well as the acquisition of treasury bills forced onto them by the state. Bank officials said that they resorted to ELA earlier than expected.

In December 2014, depositors withdrew 3 billion euros from Greek banks. The trend continues through January. Political instability and concern over Greece’s exit from the euro zone in case leftist SYRIZA comes to power have made depositors anxious.

Banks usually request ELA when they face a cash crunch and do not have adequate collateral to draw liquidity from the European Central Bank, their main funding tool. However, ELA is particularly costly as it carries an interest rate of 1.55 percent, against 0.05 percent for ECB funding.

Another factor that accelerated the request for ELA was the surprising change in the exchange rate between the euro and the Swiss franc, something that dealt a huge financial blow on 60-70,000 debtors who have taken mortgages and are tied to the Swiss currency. That cost Greek banks 1.5-2 billion euros in losses.

The repeated issue of T-bills has affected the system’s liquidity. In November, the Greek state drew 2.75 billion euros this way; in December it drew another 3.25 billion and has already tapped 2.7 billion in January. Greek banks have to buy 3 billion euros worth of T-bills that belong to foreign investors who are not renewing their stakes.

The requests by the two lenders will be discussed by the ECB next Wednesday. Analysts say that the rest of major banks will follow suit.