Political standoff sees Greek bank deposits hit 10-year low

Greek bank deposits plunged to their lowest level in 10 years in February as a political standoff between the government and the country’s creditors raised the prospect of a possible euro exit.

The deposits of households and businesses fell 5% in February to €140.5bn, their lowest level since March 2005, according to Bank of Greece data released yesterday. Greeks have pulled about €23.8bn from banking system in the past three months, 15% of the total deposit base.

Greek lenders are dependant on Emergency Liquidity Assistance (ELA) controlled by the European Central Bank to stay afloat as depositors flee. The country’s creditors have given prime minister Alexis Tsipras, elected in January on an anti-austerity platform, a Monday deadline to present enough details of an economic plan to convince them to release more funds.

“What we’re likely to see over the course of the next few weeks is still the drip-feed of liquidity,” said Janet Henry, chief European economist at HSBC Holdings . “We could get more of the ELA, that’s essential to keep the banking system afloat; they could give Greece a bit of leeway to announce its reform proposals, give it some easy wins that it can implement in the next week or two.”

On Wednesday, the European Central Bank governing council made more than €1bn of ELA available to Greek lenders, its latest move to defer a financial meltdown. That raised the limit to just over €71bn.

While ECB policymakers are ensuring lenders have sufficient liquidity to operate, the central bank’s supervisory arm is also making it difficult for banks to channel that funding to the government, banning them from increasing their holdings of short-term public debt. The increase on Wednesday leaves Greek banks with about €3bn to supply the country’s ATMs.

Greece began making €1.5bn of monthly pension and salary payments yesterday and the government is already yanking cash from public companies to cover its obligations. Athens could run out of cash in weeks.

Greece needs to act faster so its actions can be more effective, Jeroen Dijsselbloem, who heads the eurozone finance ministers’ group, said in Rotterdam on Wednesday.

Bloomberg