The ECB move, which analysts said was aimed at stepping up pressure on Athens to adhere to the commitments of its EU/IMF bailout, will force Greek banks to turn to their national central bank for Emergency Liquidity Assistance (ELA) funds. Those funds will be more expensive than funds available in the ECB’s regular liquidity operations. The ECB said the collateral exclusion was due to the expiration of a temporary 35 billion euro scheme agreed with Greece and euro zone leaders whereby the ECB would continue to accept Greek bonds after they went into default this year. “The ECB will assess their potential eligibility following the conclusion of the currently ongoing review, by the European Commission in liaison with the ECB and the IMF, of the progress made by Greece under the second adjustment program,” the central bank said in a statement. European and IMF officials are due to visit Athens next week to decide whether Athens merits another tranche of aid from its latest bailout package and analysts said the ECB move was designed to step up pressure on Greece ahead of the visit. Greek leaders this week pushed back talks to hammer out nearly 12 billion euros of austerity cuts demanded by their lenders until next week after a deal proved elusive. “In this way the ECB could be putting pressure (on the Greek government) to bring about a positive review by the troika,” Alpha Finance bank analyst Nikos Lianeris said. “If there is a positive review by the troika then the Greek banks will regain direct access to ECB funding.” Greek bankers took the decision in their stride. “It’s something we were expecting,” one banker speaking on condition of anonymity said. “The only difference is the borrowing cost for the banks.”
NO GUARANTEES
ECB Executive Board member Joerg Asmussen said late last month that Greece’s fraught elections in May and June appeared to have pushed the country’s austerity program off track. This is the second time this year that the ECB has stopped accepting Greek government bonds and government-backed assets as collateral, the first being in late February. The ECB said that Greek banks would be able to continue to get funding from the Greek central bank.
“There has been a switch to national central banks bearing the credit risk. This move is … in line with what we’ve seen in the past,” ABN Amro economist Nick Kounis said. “Once there is clarity, there would be a switch back to ECB financing.” It is likely to leave the government underwriting around 135 billion euros of central bank loans that Greek banks have taken. Greek banks had tapped a total of 62 billion euros in ELA funds from the Greek central bank by the end of June, in addition to 74 billion in regular ECB liquidity operations. They would almost certainly go bust if their central bank funding was withdrawn, as their foreign peers are unwilling to lend to them as doubts about Greece’s future in the euro zone persist. Although ELA funds are released by the national central bank, they need to be approved by the ECB, which could limit this program as well if Greece does not make progress on its bailout program. “The bigger issue is if ELA can run forever, if the program is not on track,” Kounis said. Banks in other euro zone countries also own large chunks of Greek debt, though they are more likely to have other assets to use as collateral and will thus not be hit as hard hit. The ECB requires guarantees in the form of eligible collateral from all banks that seek central bank funds in its lending operations. In a separate statement, the ECB said it would start accepting some Greek credit claims as collateral, but this move was unlikely to make up for much of the exclusion of the country’s sovereign bonds. The ECB also said it had agreed to extend the collateral use of credit claims by banks in struggling euro zone members Cyprus, Portugal and Italy. The ECB could not provide immediate estimates of how much extra collateral the changes would provide for banks.
Spain, whose ailing lenders will receive a bailout, said it was not on the list because did not ask the ECB to extend the use of credit claims by its banks as collateral.
