Financial Times revelation – the kiss of death for Greek banks

Another piece of news from unnamed ‘well placed sources’ was deliberately leaked this morning to ensure that whatever is left of the €120 bln in deposits in the Greek banks will disappear as soon as the banks reopen, thus making it more likely that the capital controls will be extended beyond next week. This is an indication that the forces behind the unnamed sources are not confident that the Tsipras government will be replaced next week. A different government will not find it easy to reverse the effects this statement will have on the banks, so this latest attempt to manipulate the Greek referendum vote could easily backfire. It does however give an idea of how much of their taxpayers money Greece’s lenders are prepared to pay supporting the banks, just to crush the left wing government of Greece.

According to the ‘sources’, Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.

The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000.

It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.

“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”

Eurozone officials said no decision had been taken to wind up any Greek banks or initiate a bail-in of depositors, a process that would be started by the ECB declaring the banks insolvent or pulling emergency loans.

Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the leftwing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared unconstitutional.

Depositors can withdraw only €60 a day from bank ATM cash machines, while requests to transfer funds abroad have to be approved by a special finance ministry committee in co-operation with the Greek central bank.

Two senior Athens bankers said the country had only enough cash to keep ATMs supplied until the middle of next week. This followed the ECB’s decision this week not to increase Greece’s allocation of emergency liquidity assistance after the bailout programme ended on June 30.

The outcome of Sunday’s referendum will determine how quickly Greece wraps up a new bailout agreement with creditors, a top Greek banker said.

Bank of England cuts protected deposit cap to £75,000

In a completely unrelated move, the Bank of England has announced today that from next year it will cut the maximum deposit it will protect to £75,000, leaving more people at risk if a bank fails.

The £10,000 reduction, driven by the weakening value of the euro and by EU rules, attracted sharp criticism from Andrew Tyrie, Conservative chair of the Treasury select committee. It was absurd, he said, and the UK chancellor should take up the matter with finance ministers across Europe.

EU rules stipulate that deposits up to €100,000 should be guaranteed. In 2010, that equated to £85,000, the BoE’s Prudential Regulation Authority said.