The European Central Bank left the ceiling on emergency funding for Greek banks unchanged for the first time since February, maintaining pressure on Athens and its creditors to reach an aid-for-reforms deal.
The move came as deposit outflows spiked again in the past week over fears Greece may default on a loan repayment to the International Monetary Fund next month and worries over potential capital controls, bankers told Reuters.
A senior banker and a government official said liquidity conditions did not require raising the ceiling of the so-called ELA funding from 80.2 billion euros.
“The ECB will not be the one to unplug the respirator. It knows the tolerance and the buffers of the banking system and closely monitors the situation,” a senior banker said, declining to be named.
“It will lend support to any liquidity imbalance problem that emerges in the system, but will not provide comfort to the Greek state to play with its money via the ELA,” the banker added.
Greek banks have survived on the emergency liquidity assistance since largely losing access to capital markets and the ECB’s less costly main funding window. The started tapping ELA in February.
A banking source said the ceiling was left unchanged because deposit outflows had slowed to low levels, leaving a sufficient liquidity cushion untapped.
“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 stabilized at very low levels.”
“An increase was not requested since the 80.2 billion euro ceiling is considered adequate following the stabilization of deposit outflows,” a Greek government official added.
While the ECB has been accommodating their liquidity needs, raising the ELA cap in increments, there has been opposition from within the bank to doing so each week on concerns it helps finance the Greek government.
The ECB declined to comment.
Greek bankers told Reuters deposit outflows accelerated over the past week as the protracted talks on worries of a debt default and capital controls.
Three bankers said outflows picked up in April to about 5 billion euros ($5.44 billion) from 1.91 billion euros in March, Official data on April deposits will be released by the Bank of Greece on Friday.
While the ECB has been propping up the banking system with incremental hikes in ELA each week, criticism of its stance has grown among the central bankers in its Governing Council.
The head of Germany’s Bundesbank criticized the ECB 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 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 banking 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.
“The ECB is not raising the haircut as this could potentially create collateral-adequacy problems for Greek banks. It is indirectly pressing for the main objective – a reforms deal with creditors,” the senior banker said.
Beaten down bank shares were gaining more than 5 percent on Wednesday, with bankers saying the market was discounting a deal would soon be concluded.
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.
Source: Reuters (Reporting by George Georgiopoulos, editing by Deepa Babington/Jeremy Gaunt)