March 19, 2015
The European Central Bank rejected a proposal by its supervisory arm to prohibit Greek banks from increasing their holdings of short-term government debt, amid concern that such a move would endanger political negotiations.
The Single Supervisory Mechanism, the ECB’s new bank oversight body, wanted to cap Greek banks’ holdings of domestic treasury bills, a key financing source for the cash-strapped government, euro-area officials familiar with the discussions said. While supervisors are concerned about the default risk that the assets carry, the higher-ranking Governing Council sent back the proposal Wednesday. The officials declined to be named as the matter isn’t public.
ECB President Mario Draghi is due to join four-way talks between Greece’s leadership, French President Francois Hollande and German Chancellor Angela Merkel starting in Brussels late Thursday. Draghi is faced with finding a balance between not deliberately worsening Greece’s financial plight as it struggles to stay in the euro, and not riding roughshod over the rules of his own institution.