Saturday 17 March 2018

Greek banks running short on collateral

Greece’s prime minister Alexis Tsipras
Greece’s prime minister Alexis Tsipras

Nikos Chrysoloras

Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras's hand after weeks of brinkmanship with creditors.

As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more and more emergency liquidity every week.

In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say.

"The point where collateral is exhausted is likely to be near," JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients.

"Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June."

European policy makers are losing patience with Mr Tsipras who said as recently as May 14 that he won't compromise on any of his key demands.

He is planning to force a discussion of Greece at a summit of European Union leaders in Latvia that begins on Thursday a day after the European Central Bank's Governing Council meets in Frankfurt.

Greek shares and bonds fell yesterday, with the benchmark Athens Stock Exchange dropping 1.4pc at 1.28pm local time.

The ASE has fallen 26.3pc in the past year, making it one of the worst performing primary equity indices tracked by Bloomberg.

Yields on two-year Greek notes jumped 280 basis points to 23.71pc, the highest level this month. Greek bonds remain the best-performing sovereign securities over the past month, according to Bloomberg's World Bond Indexes.

While talks centre on whether to give Greece more money, the ECB could decide to raise the stakes as soon as this week if it increases the discount on the collateral Greek banks pledge in exchange for cash under its Emergency Liquidity Assistance programme.

Such a move might inadvertently prompt a further outflow of bank deposits and pressure Mr Tsipras to choose between doing a deal and putting his country on the road to capital controls. A Greek spokesman declined to comment, as did officials at the Greek central bank and the ECB.

"We are in an endgame," ECB executive board member Yves Mersch said in an interview with Luxembourg radio 100.7 broadcast on Saturday. "This situation is not tenable."

The arithmetic goes as follows: Greek lenders have so far needed about €80bn under the ELA programme.

Banks have enough collateral to stretch that lifeline to about €95bn under the terms currently allowed by the ECB, a person familiar with the matter said.

Irish Independent

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