The Greek financial crisis is approaching some sort of denouement. From Wolf Richter, at wolfstreet.com:
There seems to be a growing willingness in the Eurozone to get this over with, to let Greece default and go from there – with all the options that this might entail. But even if a last-minute bailout agreement materializes, one thing stands out in this sea of chaotic uncertainty: Greek banks are toast.
The top four – National Bank of Greece, Piraeus Bank, Alpha Bank, and Eurobank Ergasias – account for 91% of Greek banking assets. They’ve already been bailed out twice. Their shares are penny stocks. They have two toxic problems: liquidity and solvency. Either one can topple them.
Liquidity is a problem because the Greeks have zero trust in their banks and have been yanking their euros out with increasing desperation. They won’t ever forget what happened to depositors in Cyprus. Deposits have plunged about 20% since November, to €130 billion. According to Reuters, “banking sources” said that just during the first three days of this week, Greeks have pulled €2 billion from their accounts – about €667 million a day, compared to prior weeks when they’d withdrawn €200 to €300 million a day.
Meanwhile, funding from central banks has jumped to over €120 billion: €40 billion from the ECB directly; and €83 billion via the Emergency Liquidity Assistance (ELA) through the Bank of Greece. Thus, deposits and central-bank funding are rapidly approaching a dreadful level: parity.
“There’s a real possibility they’ll fold, not just Greece but the banks themselves,” Fitch Managing Director James Longsdon told CNBC.
And ELA, the lifeblood of Greek banks, is conditioned on two things: available collateral and solvency.
As of mid-May, there was only about “€40 billion of potentially monetizeable collateral available,” Longsdon said. Some of which has been used up by now. So this won’t last much longer.
And if the ECB deems Greece itself insolvent, then it would likely deem the banks insolvent as well, and liquidity assistance will be turned off, Longsdon said. It would be over for the banks.
But even if Greece got bailed out at the last minute…
The banks are already insolvent – as the Greeks themselves know better than anyone else. Hence the deposit flight. Only balance-sheet sleight of hand is keeping it from seeping to the surface.
To continue reading: ECB Not Sure If Greek Banks Can Open Monday
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