Investor concerns build over Greek banking sector – BTMU

FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, comments on the recent ECB governing council’s decision that Greece could no longer access ECB’s credit using its government bonds, noting that this might increase the cost of financing for Greek banks and continue to fuel concerns over its banking sector.

Key Quotes

“The Governing Council of the ECB have decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by the Greek government including Greek government-guaranteed bank debt. The waiver had previously allowed them to be used in Eurosystem monetary policy operations despite the fact they did not fulfill minimum credit rating requirements.”

“The Governing Council’s decision was based on the fact that it is currently not possible to assume a successful conclusion of the programme review which is due to expire on the 28th February. The announcement will increase liquidity pressures for the Greek banking sector.”

“The ECB added that the liquidity needs for Eurosystem counterparties which do not have sufficient alternative collateral can be satisfied by the relevant national central bank by means of emergency liquidity assistance (ELA)”

“The cost of financing for Greek banks will now increase. The ECB also has the power to refuse permission for the Greek central bank to supply funds under the ELA requiring a two thirds majority, and reviews the procedure every two weeks with their next meeting on the 18th February.”

“It remains unlikely at the current juncture that the ECB will cut all liquidity support for the Greek banking sector which would significantly increase the risk of Greece leaving the euro-zone.”

“However, the announcement overnight acts as clear reminder of the importance of ongoing negotiations between the new Greek government and its international creditors which poses a threat to financial stability within the euro-zone.”