The European Stability Mechanism (ESM) decided on Tuesday to release 2.71 billion euros to Greece for the recapitalization of the National Bank of Greece.

“With the recapitalisation of National Bank, four systemic banks in Greece should now all be able to stand on their own feet again. Healthy banks play a crucial role in a country’s economic recovery, by providing new loans to businesses. An important contribution from the private sector has also helped strengthen the stability of the banking sector, a key objective of the third assistance programme to Greece,” said Klaus Regling, Managing Director of the ESM.

This amount will be subtracted from the funds designated to cover potential resolution and recapitalisation costs of the banking sector, part of the ESM financial assistance granted to Greece in August, the ESM said in an announcement.

The European Central Bank’s Single Supervisory Mechanism (SSM) had previously conducted a comprehensive assessment of Greece’s four systemic banks identifying shortfall of 4.6 billion euros at National Bank.

1.5 billion euros of that gap was covered by private means and 120 million through positive third quarter results. In addition, 302 million euros will be covered through preference shares, before the bank receives state aid. This means that National Bank has sufficient capital to cover the gap identified by the SSM under the so-called baseline scenario, but not the adverse scenario. The Hellenic Financial Stability Fund (HFSF) will cover the remaining 2.71 billion of the gap.

After the ESM’s disbursements, 4.6 billion euros remains available from the original 10 billion euros designated for the Greek banking sector. These funds are held in a different account at the ESM and any future disbursements will be decided per case.