ATHENS – Greece’s central bank has asked the European Central Bank to okay an emergency funding line with deposits flowing out of banks ahead of the critical Jan. 25 elections.
With Greeks fearful the elections could lead to Greece leaving the Eurozone and returning to the drachma customers have taken out more than three billion euros in the past couple of weeks.
Three of the country’s largest banks have already applied for Emergency Liquidity Assistance (ELA) from the Bank of Greece, trying to stem the effect of the outflows while insisting that the situation is under control.
“We have sent a request to the ECB on ELA approval for all four major banks to have a shield for the banking system,” the official said, declining to be named, Reuters reported.
“It is up to each bank to decide whether it will use the funding line,” the official added without providing further details.
The banks are reeling with the political instability causing turmoil just as they were getting back on their feet after a previous government hit investors and bond holders with 74 percent losses in a debt write-down.
The current government led by Prime Minister and New Democracy Conservative leader Antonis Samaras and its partner the PASOK Socialists had injected almost 50 billion euros of international bailout money into the banks.
But Samaras is slightly behind in polls to the major opposition Coalition of the Radical Left (SYRIZA) that is opposed to the austerity terms of the rescue packages from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) that put up 240 billion euros ($306 billion) and the Leftists say they will force a renegotiation or renege on the debt.
Samaras warned that a SYRIZA victory could lead to a run on the banks and undo a looming economic recovery for which he has taken credit.
Under ELA, national central banks can lend to commercial banks but have to get approval from the ECB to do so, which Greek banks often did during a crushing economic crisis.
The ECB though had warned it might stop the practice as Greece is still locked in negotiations with the Troika over unfinished reforms.
Eurobank and Alpha Bank said their banks’ requests for an ELA funding line were precautionary and partly related to their exposure to Swiss franc mortgages.
National Bank, the country’s biggest lender by assets, has no plans to tap ELA as it has sufficient collateral to draw cheaper funding from the ECB if needed, its spokesman said.
Second-largest lender Piraeus Bank does not expect it will need to do so either, a senior executive at the bank told Reuters.
“We are not planning to use ELA funding,” the senior executive told Reuter, declining to be named.
None of the bank officials explained why they aren’t going to use the ELA funding they asked for although jitters remain among customers.