Closely monitoring situation in markets
The ECB adjust haircuts on ELA collateral for Greece.
The statement from the ECB reads:
- Emergency liquidity assistance maintained at 26 June 2015 level
- Haircuts on collateral for ELA adjusted
- Governing Council closely monitoring situation in financial markets
The Governing Council of the European Central Bank decided today to maintain the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on 26 June 2015 after discussing a proposal from the Bank of Greece.
ELA can only be provided against sufficient collateral.
The financial situation of the Hellenic Republic has an impact on Greek banks since the collateral they use in ELA relies to a significant extent on government-linked assets.
In this context, the Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA.
The Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area. The Governing Council is determined to use all the instruments available within its mandate.
What does it mean?
If the amount of collateral is increased for Greek banks to borrow ELA funds, it in effect lessens the amount of borrowing the Greek banks can take or (or receive from the ECB) versus yesterday. As a result, it moves banks closer to insolvency. There are reports that the larger banks have enough cash but they remain closed. Should and when they reopen (all things being equal), the run on the banks could pressure the cash balances.
The details with regard to the haircut are a bit sketchy.
The screws are being tightened.
The EURUSD has moved lower on this headline falling about 15 pips to 1.1060-65 area.
