ELA to Greek banks extended
June 23, 2015
According to Greek banking officials cited by news media on Tuesday, the European Central Bank (ECB) provided "just under" 1 billion euros ($1.13 billion) in fresh cash to the country's lenders.
This was the fourth time in less than a week that the Greek central bank was forced to tap into the ECB's Emergency Liquidity Assistance (ELA) line to fend off the effects of massive outflows of capital.
Just last week, the ECB boosted emergency credit for Greek lenders to a total of 86 billion euros, but was forced to add another 2 billion euros on Monday, people familiar with ELA told the news agency Reuters.
This won breathing space for Athens, allowing struggling banks to stay open as Greece's Prime Minister Alexis Tsipras seeks to clinch an aid-for-reforms deal with bailout lenders.
Bank run accelerating
Nervous Greek savers and companies withdrew more than 4 billion euros in cash from their accounts last week, with 1 billion euros being picked up on Thursday alone after debt talks in Brussels remained deadlocked.
Amid widespread fear that the debt-laden country might be expelled from the eurozone, business and private bank deposits have fallen by nearly 30 billion euros between December and April to 128 billion euros, according to the Greek central bank.
If deposit flight continues to outpace ELA, it could force Greece to impose capital controls, as Cyprus did in 2013 to ration cash withdrawals and stop money fleeing the country.
Therefore, ECB officials are now meeting almost daily to discuss ELA funding for Greece, while this was necessary only on a weekly basis before.
Expensive lifeline
The ECB defines ELA as support given by central banks in "exceptional circumstances and on a case-by-case basis to temporarily illiquid institutions and markets."
A key justification for ELA provision is to prevent or mitigate potential systemic effects as a result of contagion through other financial institutions or market infrastructures.
The exact details of ELA are not published, but the average interest rate charged on it is estimated to be around 100 to 150 basis points above the ECB's benchmark interest rate, which currently stands at 0.05 percent.
Governments are ultimately responsible for any losses from ELA given by their central banks as they underwrite them.
uhe/cjc (dpa, Reuters, AFP)