Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Greek Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors.
As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap an increasing amount of emergency liquidity every week.
In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say.
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“The point where collateral is exhausted is likely to be near,” JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients on Friday. “Pressures on central government cash flow, pressures on the banking system and the political timetable are all converging on late May-early June.”
European policymakers are losing patience with Tsipras, who said as recently as Thursday that he would not compromise on any of his key demands.
While talks are centering on whether to give Greece more money, the European Central Bank (ECB) could raise the stakes if it increases the discount on the collateral Greek banks pledge in exchange for cash under its Emergency Liquidity Assistance (ELA) program.
Such a move might inadvertently prompt a further outflow of bank deposits and pressure Tsipras to choose between doing a deal and putting his country on the road to capital controls.
A Greek government spokesman declined to comment, as did officials at the Greek central bank and the ECB.
“We are in an endgame,” ECB Executive Board member Yves Mersch said in an interview with Luxembourg radio 100.7 that was broadcast on Saturday. “This situation is not tenable.”
The arithmetic goes as follows: Greek lenders have so far needed about 80 billion euros (US$92 billion) under the ELA program.
Banks have enough collateral to stretch that lifeline to about 95 billion euros under the terms currently allowed by the ECB, a person familiar with the matter said.
With the central bank raising the ELA by about 2 billion euros every week, that could take banks to the end of next month.
A crunch will come if the ECB increases the haircut on Greek collateral to levels not seen since last year.
That could be prompted by anything from a complete breakdown in talks to a missed debt payment, the official said.
A continuation of the current impasse could even be all that is needed, the official said.
An increased haircut would reduce the ELA limit to about 88 billion euros, the person said.
While that gives banks about four weeks before hitting the buffers, the leeway is so limited that Greece might need to impose capital controls, limiting transactions such as ATM withdrawals, to conserve the cushion.
Greek lenders are also working with the country’s central bank on plans to collateralize additional assets, a separate local official with knowledge of the matter said.
Still, it is unclear if these assets, including government guarantees, would be accepted by the ECB if the standoff in bailout negotiations persists.
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