ECB Is Studying Curbs on Greek Bank Support

21-Apr (Bloomberg) — The European Central Bank is studying measures to rein in emergency funding for Greek banks, as resistance to further aiding the country’s stricken lenders grows among policy makers, people with knowledge of the discussions said.

ECB staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece, the people said, asking not to be named as the matter is private. While adjusting these so-called haircuts hasn’t been formally discussed by the Governing Council, it may be considered if Greece’s leaders fail to quickly convince euro-area finance ministers they can reform their economy and secure bailout funds, one of the people said. Greek bank stocks slid.

Greek lenders are mostly locked out of regular ECB cash tenders while the country’s government, which holds talks with euro-area partners in Riga this week, tussles with its creditors over the much-needed aid payments. Instead, the banks currently have access to about 74 billion euros ($79 billion) of emergency liquidity assistance from their own central bank — an amount that has been rising and which will be reviewed this week.

There’s “no doubt” that the ECB is losing patience with Greece, said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “Greek banks will need more funding before long, so in a way larger haircuts or a lower ELA cap are equivalent.”

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PG View: With Greece already confiscating excess cash from local governments, individual depositors should be very worried that they are next. If the ECB cuts ELA in the midst of what is already a liquidity crisis, things could get really interesting, really fast. Why anyone in Greece would have their money in a bank at this point is beyond me.