Greek Banks Need More Emergency Funds

Greek Finance Minister Yannis Stournaras
Yannis Stournaras, Greece's finance minister, speaks during a Bloomberg Television interview at the Ministry of Finance offices in Athens, Greece, on March 31, 2014. Photographer: Kostas Tsironis/Bloomberg

Greek lenders are urging central bank Governor Yannis Stournaras to seek additional emergency cash as deposit outflows accelerate, according to three people familiar with the situation.

Deposit withdrawals picked up after talks between Greece and its euro-area creditors on extending its bailout ended in acrimony in Brussels Monday night, said the people, who asked not to be identified because the information is private. Stournaras meets European Central Bank Governing Council colleagues in Frankfurt tomorrow as Greek banks exhaust their current allocation of emergency funds, the three people said.

The lenders, unable to tap investors for funds, are bleeding deposits amid uncertainty over their country’s future in the euro area and concern capital controls might be used to stem outflows. Banks are being kept afloat through the Emergency Liquidity Assistance lifeline extended by the Bank of Greece, subject to approval by the ECB. The ELA pool, which currently stands at 65 billion euros ($74 billion), is extended to solvent lenders as a temporary measure to cover liquidity shortages.

A Bank of Greece spokesman declined to comment.

Greek daily Kathimerini reported last week that deposit withdrawals in January and the beginning of February totaled 15 billion euros, indicating total deposits have dropped to 145 billion euros from 160 billion euros at the end of 2014.

The ECB will likely provide ELA to Greek banks as long as there is a chance of an agreement between Greece and its creditors to extend the current bailout, economists at Barclays Plc including Antonio Garcia Pascual and Thomas Harjes wrote in a client note after the meeting ended Monday.

If Greek authorities don’t take up euro area finance ministers’ offer this week, ELA funds to Greek banks would likely be shut down, they wrote.

Greek lenders have limited holdings of investment-grade assets eligible as collateral for normal ECB financing operations.

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