The ECB governing council increased the limit on emergency liquidity assistance to €84.1bn from €83bn in a meeting in Frankfurt yesterday, the people said, asking not to be named because the discussion wasn’t public. An ECB spokesman declined to comment.
With Greece cut off from global markets, its financial system depends on central bank liquidity to replace deposits withdrawn amid the political uncertainty over the country’s place in the euro. Even so, prime minister Alexis Tsipras has accused the ECB of “financial asphyxiation.”
“Liquidity will continue to be extended as long as Greek banks are solvent and have sufficient collateral,” ECB president Mario Draghi told the European Parliament on Monday.
“We will have to monitor the situation very closely to see whether the conditions for the assessment of the collateral are still in place and, more generally, on the health of the banking system,” he said.
The ECB is trying to strike a balance between keeping Greek lenders afloat and safeguarding the country’s central bank, which provides the aid, as the government veers toward a debt default.
Greek banks’ capital levels and collateral values rely heavily on state guarantees on their assets, meaning a looming default automatically casts a shadow over their creditworthiness.
“The line between emergency liquidity assistance and delaying a collapse is fluid”, Elke Koenig, chairwoman of Europe’s Single Resolution Board, said on Monday in an interview with German newspaper Handelsblatt.
If a default occurs, the deferred-tax credits that form a large part of the banks’ capital would “probably be worthless,” she said.
The level of available emergency liquidity assistance has risen from less than €60bn in February, when the ECB effectively locked Greek banks out of regular refinancing operations.
The Governing Council reviews the amount weekly and can restrict the funding. It also has the power to insist on higher discounts on the collateral that banks post to receive the cash.
The development comes as the Government here is making contingency plans for a Greek default or exit from the euro region, a person with knowledge of the matter said.
A group of Irish government officials is examining all scenarios as talks between Greece and its creditors remain deadlocked, according to the person, who isn’t authorised to speak to reporters and asked not to be identified. Ann Nolan, deputy head of the finance ministry, leads the group, the person said.