It’s a bank run! Or at least, it’s an outflow. Is Jean-Claude Trichet watching?
The European Central Bank president is due to give what some commentators have called “one of the most important communications by the ECB in its short existence” later today. Many are hoping the outlining of changes to ECB collateral criteria for its liquidity operations will help calm market jitters.
In the meantime though, the market has to contend with stuff like the below, via the FT:
Greece’s four largest banks are seeking government support to help counter a liquidity squeeze resulting from a significant flight of deposits in the first two months of the year. George Papaconstantinou, finance minister, said on Wednesday that the banks “have asked for access to the remaining funds of the support plan” – a €28bn ($37bn, £24.5bn) government package that was put together during the 2008 global credit crunch.
The jury’s still out on the causes of recent outflows from Hellenic banks, however. Certainly the country’s debt crisis could be worrying to anyone with local deposits, but at the same time, the threat of higher taxes has also been cited as a possible cause.
Here’s some speculation courtesy of David Mackie at JP Morgan:
It is hard to know how to interpret this large decline in deposits. To some extent it is seasonal: January and February do tend to be soft months for deposit inflows. Over the five years from 2005 to 2009, the average two-month move each February has been a gain of 0.3%, compared to an average two-month gain over the five-year period as a whole of 1.9%.
But, there is clearly something going on in addition to the normal seasonality. It could reflect corporates paying higher taxes as fiscal tightening bites, residents buying higher yielding government debt, or residents moving money abroad to avoid future tax increases. Alternatively, it could reflect increased concern about bank solvency and the ability of the government to support the banks in a crisis.
For now it looks more like the former than the latter. The decline has been concentrated in overnight deposits and in those with a maturity of less than a year. Meanwhile, the past two months has seen a sharp increase in deposits with a maturity of more than two years. Clearly, if residents were concerned about the solvency of the banking sector and the government, they would not be putting more money on deposit at longer maturities.
Regardless of the causes, it’s certainly very worrying for the Greek banking sector.
The country’s banks have traditionally been largely deposit-funded, but in recent months they’ve come to rely increasingly on the ECB’s liquidity largesse, via the Bank of Greece, the nation’s central bank.
In fact, as of February 12 per cent of Greek banks’ liabilities were funded by borrowing from the Bank of Greece, according to JPM. Compare that to 1.9 per cent in January 2007, before the crisis began, or even the 10.1 per cent of December last year, and you have a (Mediterranean) sea-change in the Greek bank sector:
Indeed, Moody’s changed its outlook on Agricultural Bank of Greece from stable to negative on Thursday, in expectation of increased funding costs — adding to a rash of recent downgrades.
Meanwhile, Greek CDS is now trading around 450 basis points. That’s a record wide and nearly 40bp wider than yesterday’s close, according to Markit. Meanwhile the spread between Greek bonds and German bunds is at its highest since the Euro made its debut in 1999.
In other words, it looks like Trichet has quite a task in front of him.
Related links:
My Big Fat Greek Collateral Conversion – FT Alphaville
A Grεεk bank run smackdown – FT Alphaville
Bank Grεεkery – FT Alphaville