Two systemic Greek banks, namely Alpha Bank and Eurobank, have already resorted to the Emergency Liquidity Assistance (ELA) mechanism in order to boost their liquidity. The two banks submitted their requests for funding to the Bank of Greece on Thursday and, according to information, the remaining Greek banks will do the same over the coming days.
The increased outflow of deposits and the acquisition of treasury bills forced onto the banks by the Greek State are among the factors that rendered this move necessary.
It should be noted that deposits in Greek banks decreased by 3 billion euros last December and the same trend continues in January 2015, ahead of the general elections to be held in eight days.
Moreover, the removal of the euro cap on the Swiss franc on Thursday further deteriorated the liquidity conditions in banks.
It is reminded that the first time Greek banks resorted to ELA funding was in 2011, in order to cope with the bank run that was threatening the whole sector. Drawing liquidity from ELA system is an extremely costly option for the banks that are facing cash problems, as it carries an interest rate of 1.55%, versus 0.05% for ECB funding.
ELA mechanism as defined by the European Central Bank
Euro area credit institutions can receive central bank credit not only through monetary policy operations but exceptionally also through emergency liquidity assistance (ELA). ELA means the provision by a Eurosystem national central bank (NCB) of central bank money and/or any other assistance that may lead to an increase in central bank money to a solvent financial institution, or group of solvent financial institutions, that is facing temporary liquidity problems, without such operation being part of the single monetary policy.