ECB tightens pressure on Greece with cap on bank funding

Wed Feb 18, 2015 3:38pm EST
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By John O'Donnell and Paul Carrel

FRANKFURT (Reuters) - The European Central Bank agreed a modest increase in emergency funding for Greek banks on Wednesday, putting pressure on Athens to strike a financing deal with its European partners before its lenders run out of money.

The ECB Governing Council, meeting in Frankfurt, agreed to raise the provision of Emergency Liquidity Assistance (ELA) to 68.3 billion euros ($78 billion), a person familiar with the ECB talks said.

The ECB had already raised the ELA available to Greek banks by 5 billion euros to about 65 billion last Thursday. With Wednesday's limited raise, the ECB is keeping Greece's banks -- and thereby the Athens government -- on a tight leash.

Greek banks have seen deposit outflows pick up in recent days as the new leftist-led government has failed to agree an extension of its international bailout, which expires on Feb. 28.

Were ELA to run out, the Greek banks would endure a funding crunch that could require the introduction of capital controls to limit how much money savers can take out.

"Assuming the present outflow trends persist, it is enough to carry us over for another week," a senior Greek banker said of Wednesday's increase in the ELA limit.

The person familiar with the ECB talks said the Greek central bank had requested an extension of roughly 10 billion euros, but other sources said it had sought an increase of 5 billion.

The rules governing ELA stipulate that it is for the short term and should only be provided to solvent banks. But the solvency of Greece's banks is tied closely to that of the state, which needs funding tied to its bailout program.   Continued...

A European Union flag (L) and a Greek national flag flutter as the sky is reflected on a building front in Athens February 17, 2015. REUTERS/ Alkis Konstantinidis