Greek Banks were financed with another 700 million euros
from the Emergency Liquidity Assistance (ELA) by the European Central Bank
(ECB). The slow and torturous financing will continue as long as the
negotiations are still ongoing between Greece and its creditors with the Troika
for an agreement. During the last few days the General Accounting Office as
well as the Organization of Management of Public Debt is on a race to find
funding so as to pay the upcoming IMF debt obligation payments.
Banks seek funding from the ELA when they cannot
obtain it from the eurosystem by several events such as, being unable to
provide collateral (i.e. Greek bonds) to the ECB, the decreasing (see Quantitative Easing, ECB and
Greek Banks*) of bank deposits, and the downgrading
of Greek T – Bills by Fitch and Moody s.
The Emergency Liquidity Assistance is a temporary
financing mechanism provided to creditworthiness banks to cover needs due to
outflow of deposits. As a first choice banks seek liquidity from the money
markets. When this option is unavailable since lender banks are unwilling due
to the creditworthiness of a specific bank, then banks seek funding from the
ECB. In such a case the ECB seeks collateral of high credit ratings like
government bonds.
In the case where the ECB is unwilling to provide
financing (see same article*) then banks seek funding from the ELA. As
mentioned in the previous article, funding is more expensive than that provided
by the money markets, 1.55% vs 0.05%.
Bill T. Alexandratos
billnyc60@gmail.com
Bill T. Alexandratos
billnyc60@gmail.com
