The European Central Bank is considering measures to rein in Emergency Liquidity Assistance to Greek banks, as resistance to further aiding the country’s stricken lenders grows among the Governing Council, a Bloomberg report says.
The report cites people who have knowledge of the discussions within ECB and prefer to remain anonymous due to the sensitivity of the subject.
According to the report, ECB officials propose to increase the haircuts banks take on the collateral when they borrow from the Bank of Greece. Although the proposal has not been discussed by the Governing Council, it may be likely that ECB will proceed with the measure if Athens fails to convince the Eurogroup they can implement reforms and get further financial aid.
Bloomberg says that Greek banks have access to about 74 billion euros of emergency funds from the Bank of Greece. Euro zone finance ministers expect the April 24 Eurogroup to see Greece’s willingness to make economic reforms in order to receive the last payments of the 2012 bailout program that amount to 7.2 billion euros. If not, Greece may run out of funds in May.
There’s “no doubt” that the ECB is losing patience with Greece, said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “Greek banks will need more funding before long, so in a way larger haircuts or a lower ELA cap are equivalent.”
As Greek depositors pull cash from bank accounts amid uncertainty over the country’s future in the euro zone, the Bank of Greece seeks to match the outflow with ELA. The central bank keeps a buffer of around 3 billion euros of ELA allowance in reserve, in order to react to a possible bank run, one of the ECB officials told Bloomberg.
To restrict or veto ELA funding, a two-thirds majority of the Governing Council is necessary. A growing minority within the ECB is opposed to continuing to provide assistance to Athens indefinitely, one of the people said.
“The situation in Greece means that we should have a limit until summer for ELA,” Governing Council member Vitas Vasiliauskas said in an interview in Washington on April 18. “Everyone understands what ELA means; it’s a temporary measure to give the banks liquidity.”
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