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Die Welt: ECB agrees to allow Bank of Greece up to €60bn via ELA

The European Central Bank agreed on Wednesday to allow Greece’s national central bank to grant its banks emergency funding of up to 60 billion euros ($68.5 billion), German newspaper Die Welt reported.

The ECB had no comment on the report, which cited central bank sources.

The ECB said late on Wednesday it would no longer accept Greek government bonds as collateral for funding, shifting the burden onto the central bank in Athens to finance its lenders with emergency liquidity assistance (ELA).

The ECB’s move means the Greek central bank will have to provide its banks with tens of billions of euros in ELA in coming weeks. The ECB Governing Council can restrict such funding if a two-thirds majority agrees. (English via REUTERS; Full original article in German DIE WELT)

If this news proves to be true, a liquidity shortage for the Greek banks seem to be averted.

In a surprise move, The European Central Bank issued a statement at 11 pm Wednesday announcing that it will stop accepting Greek bonds as collateral for granting liquidity, saying however that the Greek banks could receive funds via Emergency Liquidity Assistance (ELA).

Three out of the four Greek systemic banks had middle January asked for ELA funding as “precaution” to the recent withdrawal of large amounts of bank deposits. However the total amount for the 3 banks was claimed to be some 10 billion euro.

The ECB justified its decision with the difficulties to achieve a “successful conclusion of the programme review” between Greece’s new government and the country’s lenders, the Troika.

A Greek Finance Ministry statement said later that “the banking sector was adequate capitalized and fully protected through access to ELA.”

The majority of international economists, analysts and journalists lambasted the ECB for its decision.

Financial editor Frances Coppola wrote on her blog site:

“And I stand by my views. The ECB is acting far beyond its mandate in seeking to influence negotiations between Eurozone member states regarding the terms and conditions under which member states lend to their distressed partners. It has no business interfering in fiscal policy: if the Greek government decides to run 1.5% fiscal surpluses instead of 4.5%, hike minimum wages and create lots of government jobs, it is none of the ECB’s business. The ECB’s monetary policy failures are legion: it should put its own house in order, rather than interfering with the conduct of fiscal policy. And worse, its persistent interference in fiscal policy is a clear conflict of interest, as the Advocate General of the European Court of Justice noted in relation to the OMT programme. It should not be a member of the Troika at all, and certainly should not use changes in fiscal policy by a democratically-elected sovereign government – even one that has inherited an economy in tatters with a massive debt burden – as justification for limiting liquidity to that country’s banking system. Monetary policy should never be used to serve fiscal or political ends. Not ever.” (full article in CoppolaComent )

Also interesting read is Wall Street Journal5 Questions & Answers to complicated ECB-Greece relationship”

2. How Does the ECB Support Greek Banks?
The ECB lends money to European banks against collateral. The problem for Greece is that for many years, Greek government bonds and other securities have been junk-rated, meaning they don’t meet the ECB’s minimum collateral requirements. But since 2010, the ECB has carved out an exception for Greece, saying that as long as Greece is in a bailout program, its banks could tap ECB funding. Now that Greece’s future in that bailout program is uncertain, the ECB has said its collateral no longer fits the bill for standard central bank loans. (full article here)

PS I don’t believe that the ECB will officially admit the ELA amount to BoG

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  1. It all makes sense now. Taking into the account the quite harmonic press conference today of Varoufakis and Schäuble. ECB is providing time for negotiations without the necessety for a new bailout or sth similar. In the other hand, the message from yesterday was: “Hurry up”.

    My opionion: A deal is underway

  2. It is probably for 15 days only. Of course, it will be prolonged – because majority of 2/3 is needed to stop it. But 15 days is just 15 days…
    The European Central Bank (ECB) gave the green light for Emergency Liquidity Assistance (ELA) to Greek banks.

    Three major Greek banks will get the ELA; Alpha Bank, EFG Eurobank and Piraeus Bank will have the support of the financial mechanism for 15 days.

    The decision was taken by the ECB Board after the three banks submitted a request through the Bank of Greece (BoG). The liquidity provision will be valid for two weeks and then the ECB Board will further decide if the liquidity line will continue. Banks can apply again and receive the ELA for a period no longer than six months.

  3. “In exceptional circumstances, however, a national central bank can lend to banks that have run out of suitable collateral, at its own risk and at higher rates of interest. This is ELA. Although national central banks can instigate its use, the ECB must be informed, and can restrict it if two-thirds of the governing council decide that is warranted.”
    So the ECB probably risks nothing now [in opposition to yesterday]- all the risk [and possible losses in balance sheet] is the risk of the Greek National Bank. But I think yesterday decision was no attack, just normal technocratic decision.