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June 13, 2011

Are Greek banks being emptied?

Though not the focus of this article by Simon Nixon at the online Wall Street Journal, the background is of a massive depositor flight in Athens:

"The euro zone appears to have no appetite to impose haircuts at this stage. The more immediate concern is bank funding. The Greek banking system has a relatively low loan-to-deposit ratio of about 120%, well below Irish and Portuguese levels. But over the last year, deposits have fallen by €44 billion, and Greek banks have been shut out of the repo market, the interbank market and bond markets. That has left a €135 billion funding gap, mostly filled by the European Central Bank.

In theory, Greek banks have access to unlimited ECB liquidity. But in practice, they are under pressure to reduce their dependence. They already have cut borrowing this year by €11 billion, to €87 billion, despite a €13 billion deposit outflow. "

I have read in a number of places over the last year that deposits were being moved from the Greek mainland, principally to banks on Cypress. The reasoning being that if Greece leaves (or gets pushed) off the euro, Cypress deposits could be then moved back into Greece to reap a drachma windfall of 30%, 40% or more percent via exchange rates. If the current trend of rumour/prognostication building toward a Greek default continues (indeed, some of the news opinion writers seem to be urging for default), the deposit flight will only get worse.

A Greek default also has eurozone-wide implications, with bank runs likely throughout europe as the systems in Spain, Portugal and Ireland would come under new pressures, and those banks are extended more precariously than the Greek banks are.

Related: Dec 2011 massive bank withdrawals taking place



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