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Greek banks to lose cheap borrowing after ECB revokes waiver

The European Central Bank announced on Friday it will restrict Greek banks’ access to its cheapest funding operations as from August 21, when the country exits the bailout program.

The ECB will revoke a so-called ‘waiver’ which allowed Greek banks to post junk-rated government bonds as collateral in regular funding operations, a well anticipated move that comes as Greece exits its third bailout programme within days.

Such an exemption could only be granted while a country is in a bailout programme, and the ECB has long said that the waiver would be revoked, much like in the case of Cyprus in 2016 when it exited its own bailout.

The loss of the waiver could force Greek banks to seek more Emergency Liquidity Assistance, a more expensive source of central bank funding, and would keep Greek papers ineligible for the ECB’s 2.6 trillion euro bond purchase programme.

Still, the end of the bailout is a major milestone and indicates that Greece is healthy enough to stand on its own feet, a confidence booster that could offset the added cost of more funding.

Greek banks borrow just over 8 billion from the ECB in longer-term refinancing operations and now need to post a new type of collateral to maintain their access.

However, a source familiar with the process said that migration to ELA is expected to be modest and the ELA cap of 8.4 billion is not expected to be raised as a result.

it said on Friday, a move that could increase costs for lenders but may still help shore up confidence in Europe’s weakest economy.

While 10-year Greek bonds GR10YT=RR still yield over 4 percent, they are well off from levels above 10 percent before the bailout,

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