Tweet

Email

The European Central Bank on Wednesday did not raise a ceiling on emergency funding for Greek banks in a weekly review for the first time since February, a banking source said, adding financial pressure as the country scrambles to stay solvent.

Greek banks have survived on the emergency liquidity assistance (ELA) since largely losing access to capital markets and the ECB’s main funding window.

The ECB has been raising the cap on ELA in increments, but there has been opposition from within the bank to doing so each week on concerns it helps finance the Greek government.

The banking source said the ceiling was unchanged because deposit outflows had slowed to low levels, leaving an untapped liquidity cushion.

“This leaves an unused liquidity buffer of 3 billion euros,” the banking source said. “The reason for not raising the ceiling was that deposit outflows stabilised at very low levels.”

“An increase was not requested since the 80.2 billion euro ceiling is considered adequate following the stabilisation of deposit outflows,” a Greek government official added.

But Greek newspaper Kathimerini reported on Wednesday that deposit outflows had picked up in the last days on worries over the possibility of capital controls. Official data on deposit outflows in April will be released on Thursday.

The ECB declined to comment.

While propping up the banking system, the incremental hikes in ELA each week have also kept pressure on Athensto strike a deal with its euro zone and International Monetary Fund creditors over economic reforms required to unlock remaining bailout aid.

The head of Germany’s Bundesbank criticised the European Central Bank earlier this month, saying emergency funding for Greek banks broke the taboo of financing governments and it was not up to central banks to decide who was or wasn’t in the euro zone.

Hawks on the ECB’s Governing Council have also pushed for raising the haircut – or valuation discount – on the collateral Greek lenders submit to draw ELA funding but there was no decision taken at Wednesday’s teleconference, the source said.

Increasing the haircut would effectively reduce the value of security that Greek banks can offer and consequently the amount of ELA they can draw down.

A potential default by Athens on IMF loan repayments next month could be a trigger for the ECB to raise the haircut as it would signal a deterioration in creditworthiness.