Western Central Bank Credit Crunches Greek Banks

posted on 24 Apr 2015 04:32 by snobbishwager6855
As before running out of money, Portugal scrambles to ensure a funding offer with Europe, the European Central Bank is tightening the vise on the ailing banks in the country by curtailing access to crisis loans that are urgently needed.

The European Central Bank is today demanding that the value of the security that Greek banks post at their particular central bank to secure these loans be decreased by around 50 percent, in accordance with people who happen to be briefed on these sorts of discussions but who weren't authorized to discuss them freely.

And, these folks say, in the event the Greek government and Europe remain with an impasse on an agreement about austerity measures, these so-called haircuts could raise further.

The transfer highlights the hardline approach obtained by the E.C.B. toward Greece as it squeezes the new authorities to achieve an agreement with its creditors.

With all the value of the collateral being paid off so dramatically, banking will likely be hard pressed to get the money they need to live.

2009 Credit credit scoring services downgrade Portugal on worries that it could default on its debt December.

Europe reach a $146 billion rescue package, depending on austerity measures, may 2010. Some economists state the individual could be killed by the required reductions.

October 2011 Banks agree to consider a 50 percent reduction on the face value of the debt that is Greek.

July 2012 Shares soar after the the top of the E.C.B. states policy makers may do ''whatever it takes'' to save the euro-zone.

January 2015 voters that are Greek select an anti- austerity party. Alexis Tsipras becomes prime minister.

Feb 2015 Western leaders hashed out an offer to extend the bail out by four weeks, with caveats.

The banks, consequently, have to supply adequate collateral to get these loans, which now stand at 74 billion dollars, $79.7 billion, or more than half the amount of Greek national deposits.

But with deposits fleeing the financial system and with nonperforming loans -- early this year, before the radical Syriza government came to power, which had stabilized -- increasing again, it's been challenging for banks to come up with assets that are acceptable to underpin credit.

Controversially, after Greek banks have actually begun to concern themselves with bonds and guaranteeing a government guarantee, used the investments to procure short term funding -- a practice that has been excoriated by Yanis Varoufakis before he became the Greek finance reverend.

On April 8, for example, the National Bank of Portugal self-given EUR4.1 billion of six-month bonds that transported state support. But with Portugal on the verge of default -- Mr. Varoufakis has often said his country is broke -- those guarantees are not worth considerably.

Mr. Varoufakis has often complained the E.C.B. is "asphyxiating" Greece by restricting the number of bills that the banks can purchase from the government and retaining a tight lead on emergency loans.

Moreover, these haircuts exceed those levied on Greek banks when crisis loans had soared to EUR125 million on worries that Greece might be forced to depart the eurozone.

Under E.C.B. guidelines, the central bank of Portugal assumes full responsibility for the credit risk when it issues these emergency loans.

But the E.C.B. carefully monitors them, establishing limitations and inspecting the security.

Throughout the Cyprus crisis, Jens Weidmann, the strong German member of the E.C.B.'s governing council, candidly criticized the head of the Malta central bank for inflating the value of security to let desperate Cypriot banks to use more money.

By demanding such large price reductions, the E.C.B. is making sure the same thing does not happen in Portugal.