27 Apr 2015
Greek banks’ access to ELA, a new line of attack – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team argues that the the strict constructionists, for lack of a better term, at the ECB have opened up a new line of attack: Greek banks’ access to ELA.
Key Quotes
“Recall the ECB retracted a waiver for Greek government bonds as collateral, which forces Greek banks to go to its own central bank.”
“Under this facility the Greek central bank can loan to Greek banks at a higher rate for collateral unacceptable to the ECB. The risk remains on the Greek central bank's balance sheet, but it requires ECB approval. The ECB has been doling out its approval a little at a time on a weekly basis.”
“The critics raise two points. First the ELA is by definition for emergencies, but Greek banks are not changing their business models, or in other ways, responding to the emergency. Second, the haircut charged for using Greek government bonds as collateral needs to be reviewed in light of the circumstances.”
“Although there is no formal mechanism to eject Greece from the monetary union, cutting the Greek banks off of central bank funding has long been perceived to be one way that the process can be engineered. Draghi has indicated a reluctance to make such a political decision.”
“We would expect him to be able to marshal a majority to support this position, but perhaps not without a compromise, which could include a greater haircut. The net effect would be to bring forward the day that Greek banks exhaust their collateral.”
Key Quotes
“Recall the ECB retracted a waiver for Greek government bonds as collateral, which forces Greek banks to go to its own central bank.”
“Under this facility the Greek central bank can loan to Greek banks at a higher rate for collateral unacceptable to the ECB. The risk remains on the Greek central bank's balance sheet, but it requires ECB approval. The ECB has been doling out its approval a little at a time on a weekly basis.”
“The critics raise two points. First the ELA is by definition for emergencies, but Greek banks are not changing their business models, or in other ways, responding to the emergency. Second, the haircut charged for using Greek government bonds as collateral needs to be reviewed in light of the circumstances.”
“Although there is no formal mechanism to eject Greece from the monetary union, cutting the Greek banks off of central bank funding has long been perceived to be one way that the process can be engineered. Draghi has indicated a reluctance to make such a political decision.”
“We would expect him to be able to marshal a majority to support this position, but perhaps not without a compromise, which could include a greater haircut. The net effect would be to bring forward the day that Greek banks exhaust their collateral.”