How Greece Is Scrambling to Save Its Banks — Again

Greece is scrambling to figure out how to save its banks — again. Burdened by bad loans that make up almost half of total lending, crippled banks remain one of the biggest hurdles to Greece’s economic recovery. There are even worries that the country may face yet another financial crisis if it can’t dislodge its lenders from their downward spiral. With bank shares tumbling, the government and the Bank of Greece are working on plans to help banks speed up efforts to shed soured loans.

The government is said to be weighing a plan to help banks speed up bad-loan disposals, possibly including a state guarantee. Various ideas, including the creation of an Asset Protection Scheme and Special Purpose Vehicles into which bad loans would be unloaded with state guarantees, have been floated. The government could use a post-bailout cash buffer of about 24 billion euros ($27 billion) to shore up the banks, but the use of buffer funds may lead investors to question whether the state’s financing needs are fully covered for the years ahead. And it could breach European Union rules that forbid state aid to banks without private creditors, including those with deposits over 100,000 euros, taking a hit first.