ECB to decide on discount applied to collateral offered by Greek banks

The European Central Bank board of directors will convene on Wednesday in order to discus the renewal of the Emergency Liquidity Assistance (ELA) for Greek banks and the rumored discount applied on collateral offered by the banks to the ECB.

Latest rumors suggest that the ECB is considering implementing a 10% to 20% ‘haircut’ on Greek collateral, under pressure from the German central banker Jens Weidmann and his allies. Such a development would force the Greek government to seek out an agreement with its partners before the end of June, when the support program ends.

So far Greek banks have received 80 billion euros via the ELA mechanism and based on the collateral worth 137 billion euros, they can draw a total of 95 billion euros, namely further 15 billion euros. At present, the discount on Greek collateral is 30%, but should it be increased to 40%, then the ELA ceiling will drop to 82.2 billion euros.

Banking sources claim that Greek credit institutions may find further titles for collateral (beyond the 137 billion euros), which could secure access to the ELA for an additional month. Such a development however would leave the Greek bank system in a precarious situation.