No liquidity problems for Greek banks, JP Morgan report

Greek banks will not have any problem in draining liquidity following European Central Bank’s (ECB) decision not to accept Greek bonds as collateral, as banks will use the Emergency Liquidity Assistance (ELA) mechanism, JP Morgan said on Thursday.

In a report, the US investment bank said an agreement between Greece and the Eurozone must be reached before the end of May.

JP Morgan said that Greek banks will cover their biggest part of liquidity from ELA, with only a small part through ECB’s mechanism, as banks still have the ability to offer some securities as collateral, such as bonds from the EFSF. This change will have some impact since borrowing from ELA is more expensive (with an interest rate of 1.55% instead of 0.05% of the ECB), but liquidity will be available.

ECB’s decision puts pressure on the Greek government but it will not leave banks without funding as this could lead to Greece’s exit from the Eurozone, JP Morgan said, adding that if borrowing through ELA became huge, an interim measure could be putting controls on capital movement.