Wednesday, February 4, 2015

What the ECB's Move on Greek Government Debt Is Really All About

February 4, 2015

In a press release that jolted the markets, the ECB announced it will no longer accept Greek government debt as collateral starting next week. But this news is not necessarily a potential liquidity disaster for Greek banks.

The Greek banking system is not particularly reliant on Greek sovereign debt as collateral. Figures from the Bank of Greece show that Greek financial institutions currently have about €21 billion ($24 billion) of Greek sovereign exposure. Furthermore, this debt has already been subject to valuation haircuts of up to 40 percent when used as collateral at the ECB.

All collateral that the Greek banks use for ECB operations that is not Greek sovereign debt is still perfectly good to use. This decision of the ECB is against the Greek sovereigns, not the Greek banks.

Further, any shortfall in liquidity will be fully made up by Emergency Liquidity Assistance that will be issued by the Greek central bank at its own risk.


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