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Greek banks are struggling to remain private

27 October 2015 / 16:10:50  GRReporter
2259 reads

The Greek parliament will vote on the legal framework for the recapitalisation of Greek banks at the last moment although, under the third memorandum of financial assistance signed, it should have passed the law before 15 October. Some sources indicate that the bill will be submitted to parliament in the coming days and certainly by Friday, because the stress tests of Greek banks will be announced on Saturday. At the same time, Vice-President of the European Commission Valdis Dombrovskis, who is on a two-day visit to Athens, directly related bank recapitalisation with the monitoring on the implemented conditions of the third rescue programme. He even said that it was necessary to take measures to protect bank deposits, thus fully pressing the Greek government.

Long meetings with creditor representatives were held in Athens over the weekend to reach an agreement on all the technical details of the recapitalisation, on issues related to the functioning of the Financial Stability Fund and on the final version of the bill. They however were unproductive. Greek government sources are trying to appease the spirits, arguing that the bill would be tabled in parliament at very short notice, citing the message of the cabinet after the meeting last Thursday, according to which the bill on recapitalization was ready. However, the considerable delay is more than apparent. And all this despite the fact that if the recapitalisation does not take place by the end of the year for some reason, deposit haircut may be required in 2016.

The delays in the commitments of Athens on the implementation of the third rescue programme prompted the intervention of the European Commission. Its Vice-President recalled "the decision of the Eurogroup, under which bank recapitalisation had to be completed after the first monitoring of the implementation of the programme and no later than 15 November. Therefore it is clear how important it is to meet this deadline." Valdis Dombrovskis stressed the interrelation between recapitalisation and monitoring, because "if someone tries to recapitalise banks and abolish capital controls without stability being restored and the monitoring completed, the result will most likely be negative for the banking sector."

A photo from the meeting between Vice-President of the European Commission Valdis Dombrovskis and Governor of the Bank of Greece Yiannis Stournaras, Source:

"The Greek authorities are aware that they have to meet the deadlines in order for the first monitoring to be completed, accounting for the fact that the European Commission and the European Central Bank were the ones to insist on protecting deposits in Greek banks. This is the reason why we are insistent on the timely completion of the first monitoring of the implementation of preliminary measures," said Dombrovskis.

Meanwhile, the European Central Bank will announce the stress test results of Greek banks at 11:30 am on Saturday. It will indicate the capital requirements of each bank under the baseline and negative test scenarios. According to analysts, the capital requirements to be determined based on the negative scenario and the asset quality review (AQR) of banks will amount to around 15 billion euro. Having deducted restructuring plans, future earnings, etc., the final amount of capital requirements will be between 9 and 10 billion euro.

The European institutions will urge Greek banks to increase their capital to cover that amount. If they fail to raise the required funds (which is the most likely development) but are able to raise the capital corresponding to the bank asset quality review and the baseline scenario, the liquidation issue will not be tabled. Then the European authorities will allow private involvement and the Financial Stability Fund to cover the remaining amount. In this situation, if banks raise the sum of around 5.5 billion euro from private investors, they will be able to remain private.

Tags: EconomyRecapitalisation of Greek banksThird rescue programmeMonitoringStress testsEuropean Central Bank
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