Latest BoG data depict that Greek banks’ Eurosystem funding slightly eased in October with a c€23bn shift from ECB to ELA funding. In particular, ECB funding dropped by €23.7bn or 78.5% m-o-m to €6.5bn in October, while BoG liquidity provided to Greek banks through the ELA mechanism rose by €22.2bn or 22.0% m-o-m to €122.8bn.
Overall, Greek banks’ Eurosystem (ECB plus ELA) funding slightly eased by €1.6bn or 1.2% m-o-m to €129.3bn in October, following a drop of €0.8bn in September, most likely reflecting deposit inflows of €1.0bn and €1.2bn respectively. Note that Eurosystem funding had slipped by €5.3bn to €130.3bn in July (the first monthly drop since April), while June figure of €135.6bn was the second historic highest after the peak of €157.1bn recorded in February ‘12.
It is reminded that ECB funding had recorded a sharp drop in July (-€49.7bn) with a consequent increase in ELA liquidity (+€44.4bn), since GGBs were not accepted as collateral by ECB as of July 25. In particular, ECB had announced on July 20 that “due to the expiration on July 25 of the buy-back scheme for marketable debt instruments issued or fully guaranteed by the Hellenic Republic, these instruments will become for the time being ineligible for use as collateral in Eurosystem monetary policy operations”. The formal Eurogroup decision on the disbursement of the next tranche by December 13 is anticipated to lift the aforementioned restrictions of GGBs ECB ineligibility.
There is an ongoing discussion about an article of economist Gianis Varoufakis published here http://www.protagon.gr/?i=protagon.el.8emata&id=20556 . In that article he claims that by using GGBs as collateral Greek banks receive funds from the ECB at 70% oft their face value. Some commenters have wondered if that claim is true, for one would think that the ECB values the collateral it accepts at market value. Could you please clarify this matter for us?
First to clarify that the aforementioned amounts on ECB and ELA funding refer to the actual liquidity that Greek banks receive (from ECB and BoG respectively) and not to the amount of collaterals.
It is true that both ECB and BoG apply a ‘haircut’ on the various asset collaterals, which varies from 25-35% with the average close to 30%. This means that using a collateral with a nominal value of 100 you get liquidity of c70.
on the same subject I looked up the May 2012 20-F form of NBG that is supposed to submit to the SEC since NBG is listed as an ADR on the NYSE. Here’s the link to it for your convenience: http://secfilings.nyse.com/filing.php?doc=1&attach=ON&ipage=8269994&rid=23
On page 22 of that report , the bank claims the following :
“The liquidity we receive from the ECB may be affected by changes in ECB rules. The amount of funding available from the ECB is tied to the value of the collateral we provide, including the market value of our holdings of GGBs, which itself may decline. If the value of our assets declines, then the amount of funding we can obtain from the ECB will be correspondingly limited.”
The above seems to me to contradict your view that :”This means that using a collateral with a nominal value of 100 you get liquidity of c70.”
Rather it seems to me from what the bank is claiming, that the liquidity provided to them from the ECB against their GGBs holdings is tied to the *market value* and not the nominal value of those bonds.
Fine-tuning my previous answer, the aforementioned 30% is the effective weighted average haircut taking into account ECB rules and market value of asset collaterals (not only GGBs).
Note that after PSI and before debt buyback transaction (completed today), Greek banks’ GGB holdings amounted to just €15bn (nominal value), while their Eurosystem funding stood at €129bn at the end of October.
Fair enough.The question was specific to the GGBs in our discussion (on protagon). The premise that was made was that :”..by using GGBs as collateral Greek banks receive liquidity from the Eurosystem at 70% oft their face value. “. The second premise of course was what we all know now “Greek banks agreed to sell their GGBs at ~ 33% ” And the conclusion was, “therefore banks will loose liquidity access to the equivalent of 70%-33%=37% of face value of GGB that they were holding”.
So do we have any reason to believe that GGBs were valued at 70% face value when used as a collateral for liquidity purposes, and not at market prices instead, given NBG’s statement that was submited to the SEC?
I think it is now clarified.
The weighted average effective haircut on all collateralised asset classes is c30%.
GGBs in particular are valued at market prices, so their actual haircut is much higher, currently at c65%. Consequently, there is no immediate impact from debt buyback.
After PSI, Greek banks hold GGBs of just €15bn, while ECB funding has dropped from €73.7bn in June to only €6.5bn in October out of a total €129bn Eurosystem funding, so both ECB funding and GGB funding pool have dropped substantially.
Hope it helps.
Thanks for your input. Much appreciated.