Greek bank run fears grow despite ECB life-support extension

Deposits in Greek banks continue to tumble despite the European Central Bank increasing its financial life-support to the Greek banking sector by a further €1.1 billion on Wednesday (17 June).

The ECB’s emergency liquidity assistance (ELA) programme for Greek banks now totals €84.1 billion following a meeting of its governing council. The move comes just a week after the Governing Council decided to allow a €2.3 billion increase to the ELA ceiling for Greece, taking it to €83 billion.

However, the increasing likelihood of talks between Greece and its creditors collapsing, resulting in a Greek default, is causing savers to withdraw their money at record levels.

According to the most recent figures from the ECB, Greek bank deposits fell by €27 billion over the first four months of 2015 and at €139.6 billion, are at their lowest level for a decade. An estimated €1.7 billion was withdrawn between Monday and Wednesday this week.

The ECB has repeatedly stressed that a solution to the Greek crisis will have to be thrashed out by politicians, but the Frankfurt-based bank would be one of the main losers from a Greek default and exit from the eurozone.

The ECB is owed €20 billion by the Greek government, although its real exposure is far higher. The bank has pumped in €118 billion into the Greek banking system, through the ELA programme and collateral based lending to the Greek central bank.

This figure is equivalent to around 66 percent of the Greek annual economy, and more than double the amount exposed at the end of 2014.

Greek lenders have become increasingly reliant on ELA as worried depositers continue to move money out of the country.

Speaking at a hearing in the European Parliament on Monday (15 June), ECB President Mario Draghi i maintained that the bank would continue to lend to Greek banks despite the increasing possibility of a Greek default which would almost certainly prompt a bank run on the country’s banks, putting the ECB’s money in severe peril.

“ELA is being given to banks that are solvent and are in a position to offer collateral,” he said, adding that “the major Greek banks are solvent and the collateral they provide is adequate”.

“Of course, the situation is evolving..and we need to assess the general health…there is no set ceiling for ELA."

For his part, in an interview in Italian daily La Stampa on Thursday, Bundesbank president Jens Wiedmann stated that the ECB would have to end its ELA lending to Greek lenders if a political agreement with the country's creditors cannot be found.

"It is not the ECB's task to finance states, in fact it is forbidden," Wiedmann said.