European Central Bank tells Greek banks to carefully manage liquidity

By: | Published: January 23, 2015 4:28 PM

European Central Bank has written to Greece's top four banks, warning them to pay close attention to liquidity management ahead of Sunday's election...

The European Central Bank has written to Greece’s top four banks, warning them to pay close attention to liquidity management ahead of Sunday’s election, following increased deposit outflows in recent weeks, Kathimerini said on Friday.

The newspaper said the ECB urged the banks not to pool liquidity in assets that could not be used as collateral for funding from the central bank, a stipulation that would limit purchases of short-term T-Bills.

The leftwing Syriza party, which has built up its opinion poll lead in the run-up to Sunday’s election, has identified increased T-Bill issuance as an option to meet funding needs that will arise while Greece’s international bailout remains frozen.

A senior banker confirmed that regulators in the ECB’s Single Supervisory Mechanism, the system that oversees the euro zone’s biggest banks, had written to the banks about liquidity management but said there was no specific mention of T-bills.

“The Single Supervisory Mechanism sets a framework, the interpretation is the paper’s,” the banker told Reuters, declining to be named.

The banker said the country’s four big banks have a 3 billion euro cap on the amount of T-bills they can use as collateral to raise funds from the ECB.

Tightening liquidity conditions amid deposit outflows ahead of a national election on Jan. 25 forced the country’s banks to increase their borrowing from the ECB against collateral by 25 percent last month to 56 billion euros.

Kathimerini said the SSM was closely monitoring developments and statements by anti-bailout Syriza party politicians that Greece’s funding needs can be accommodated by increased T-bill issuance, suggesting banks may be constrained in their capacity to raise their exposure to T-bills.

Opinion polls show Syriza has built up its lead over the ruling conservatives.

Shut out of bond markets, Greece will likely need to resort to T-bill issues to cover its funding needs as a stalled bailout review has frozen the disbursement of remaining aid.

It has already reached a 15 billion euro cap on outstanding T-bills, set by its EU/IMF lenders.

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