This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2015/07/14/business/international/greeces-banks-are-next-in-line-for-a-european-bailout.html

The article has changed 3 times. There is an RSS feed of changes available.

Version 1 Version 2
Greece’s Banks Are Next in Line for a European Bailout Greece’s Banks Are Next in Line for a European Bailout
(7 months later)
FRANKFURT — Eurozone leaders acknowledged on Monday what has become increasingly obvious to everyday Athenians: Greek banks need a bailout, too.FRANKFURT — Eurozone leaders acknowledged on Monday what has become increasingly obvious to everyday Athenians: Greek banks need a bailout, too.
Among its many proposed measures, the new accord between Greece and its European creditors calls for an overhaul of Greece’s rickety banking system, including money to replenish capital and, if needed, to close insolvent lenders. Among its many proposed measures, the new
accord between Greece and its European creditors calls for an overhaul of Greece’s rickety banking system, including money to replenish capital and, if needed, to close insolvent lenders.
Despite the tentative deal, the European Central Bank, which has been keeping Greek banks propped up for months with emergency loans, declined on Monday to provide additional cash. The central bank’s governing council is waiting for the Greek Parliament to ratify the deal before taking on any more risk from Athens. Parliament must approve at least some of the measures by Wednesday for the deal to move forward.Despite the tentative deal, the European Central Bank, which has been keeping Greek banks propped up for months with emergency loans, declined on Monday to provide additional cash. The central bank’s governing council is waiting for the Greek Parliament to ratify the deal before taking on any more risk from Athens. Parliament must approve at least some of the measures by Wednesday for the deal to move forward.
The governing council’s decision on Monday means that Greek banks may not reopen this week as planned and could soon run out of cash. The Greek government said Monday that banks would remain closed through Wednesday. Analysts expect them to stay closed much longer.The governing council’s decision on Monday means that Greek banks may not reopen this week as planned and could soon run out of cash. The Greek government said Monday that banks would remain closed through Wednesday. Analysts expect them to stay closed much longer.
In any case, central bank aid is simply a stopgap measure to keep the banks alive until they can regain the confidence of their depositors. Before the Greek banks can operate with any semblance of normalcy, they must recover from an economic slump that returned with vicious force this year, leaving them with piles of bad loans and portfolios full of Greek government bonds whose value is questionable.In any case, central bank aid is simply a stopgap measure to keep the banks alive until they can regain the confidence of their depositors. Before the Greek banks can operate with any semblance of normalcy, they must recover from an economic slump that returned with vicious force this year, leaving them with piles of bad loans and portfolios full of Greek government bonds whose value is questionable.
“They are in a perfect storm,” said Diego Iscaro, senior economist at the market research firm IHS Global Insight. “They are being hit by the fact that the economic situation has deteriorated so much in the last few months.”“They are in a perfect storm,” said Diego Iscaro, senior economist at the market research firm IHS Global Insight. “They are being hit by the fact that the economic situation has deteriorated so much in the last few months.”
The European Central Bank, though, could soon provide more support to the Greek banks. Depending on how quickly Athens acts, the central bank could lift its cap on those emergency loans as early as Thursday when it holds a monetary policy meeting in Frankfurt.The European Central Bank, though, could soon provide more support to the Greek banks. Depending on how quickly Athens acts, the central bank could lift its cap on those emergency loans as early as Thursday when it holds a monetary policy meeting in Frankfurt.
Greek banks have probably used up all of the 89 billion euros, or nearly $99 billion, in emergency loans authorized so far by the central bank. A further increase might allow the banks to reopen next week, Mr. Iscaro said. And it might allow the banks to raise the limit on cash withdrawals, which the government has capped at €60 per day.Greek banks have probably used up all of the 89 billion euros, or nearly $99 billion, in emergency loans authorized so far by the central bank. A further increase might allow the banks to reopen next week, Mr. Iscaro said. And it might allow the banks to raise the limit on cash withdrawals, which the government has capped at €60 per day.
But restrictions on international money transfers and some other transactions, so-called capital controls, are likely to remain in place until there has been a more thorough bank cleanup.But restrictions on international money transfers and some other transactions, so-called capital controls, are likely to remain in place until there has been a more thorough bank cleanup.
According to the statement issued by eurozone leaders in Brussels that outlined the agreement, a new rescue fund for Greece would include at least €10 billion, and perhaps as much as €25 billion, that would be used to replenish the capital of Greek banks or to shut them down if they were insolvent.According to the statement issued by eurozone leaders in Brussels that outlined the agreement, a new rescue fund for Greece would include at least €10 billion, and perhaps as much as €25 billion, that would be used to replenish the capital of Greek banks or to shut them down if they were insolvent.
The mention of bank “resolution” in the statement — a term meaning to shutter a failed lender — was an acknowledgment that some banks may be too badly damaged to survive.The mention of bank “resolution” in the statement — a term meaning to shutter a failed lender — was an acknowledgment that some banks may be too badly damaged to survive.
The agreement also calls for the European Central Bank, in its role as the eurozone’s banking supervisor, to conduct a thorough review of Greek banks after the summer. Greece’s four largest banks passed a health check last year, but they have suffered since from the decline in the Greek economy and from the drain of deposits by fearful customers.The agreement also calls for the European Central Bank, in its role as the eurozone’s banking supervisor, to conduct a thorough review of Greek banks after the summer. Greece’s four largest banks passed a health check last year, but they have suffered since from the decline in the Greek economy and from the drain of deposits by fearful customers.
Mario Draghi, the president of the European Central Bank, took part in the discussions in Brussels about a new aid program for Greece, and he was likely to have argued — as top officials of the central bank have elsewhere — in favor of a program to help the banks.Mario Draghi, the president of the European Central Bank, took part in the discussions in Brussels about a new aid program for Greece, and he was likely to have argued — as top officials of the central bank have elsewhere — in favor of a program to help the banks.
The escalation of the crisis in Greece in recent months has hit the banks from all sides. The recently imposed restrictions on cash withdrawals and international money transfers have been poisonous to the Greek economy, increasing the number of individuals and businesses falling behind on loan payments. Banks have had a surge in problem loans.The escalation of the crisis in Greece in recent months has hit the banks from all sides. The recently imposed restrictions on cash withdrawals and international money transfers have been poisonous to the Greek economy, increasing the number of individuals and businesses falling behind on loan payments. Banks have had a surge in problem loans.
The government’s financial distress, meanwhile, has undercut the value of Greek bonds, which also hurts the banks because they have large holdings of their own government’s debt. The European Central Bank last week downgraded the value of Greek bonds when used as collateral for emergency loans. But it could reverse that decision if there is a new rescue plan for Greece that would keep the country from defaulting on its debt.The government’s financial distress, meanwhile, has undercut the value of Greek bonds, which also hurts the banks because they have large holdings of their own government’s debt. The European Central Bank last week downgraded the value of Greek bonds when used as collateral for emergency loans. But it could reverse that decision if there is a new rescue plan for Greece that would keep the country from defaulting on its debt.
The forced bank closings were another blow. A bank can hardly be expected to make money when its doors are locked.The forced bank closings were another blow. A bank can hardly be expected to make money when its doors are locked.
And despite the €60 daily limit on withdrawals from cash machines, analysts say that money will run out any day, further damaging the Greek economy.And despite the €60 daily limit on withdrawals from cash machines, analysts say that money will run out any day, further damaging the Greek economy.
A reason the government ordered the banks to close is that they ran out of sources of funds to replace the money that depositors have withdrawn. Analysts at Barclays estimate that banks have lost about 25 percent of their total deposits since December.A reason the government ordered the banks to close is that they ran out of sources of funds to replace the money that depositors have withdrawn. Analysts at Barclays estimate that banks have lost about 25 percent of their total deposits since December.
The outflow eroded the banks’ capital and left them in acute danger of not having enough cash on hand to manage daily operations. All banks use far more borrowed money than their own funds, and they cannot withstand a sustained loss of deposits for long.The outflow eroded the banks’ capital and left them in acute danger of not having enough cash on hand to manage daily operations. All banks use far more borrowed money than their own funds, and they cannot withstand a sustained loss of deposits for long.
It is a vicious cycle. Every day that banks remain closed adds to their problems and the eventual cost of a bank overhaul. And the restrictions on cash withdrawals means that Greeks are limited in what they can spend.It is a vicious cycle. Every day that banks remain closed adds to their problems and the eventual cost of a bank overhaul. And the restrictions on cash withdrawals means that Greeks are limited in what they can spend.
The reduced sales feed back to the banking system because stricken businesses run short of money to repay their loans. In addition, some Greek workers are not receiving their full paychecks, crimping their ability to repay mortgages or other loans.The reduced sales feed back to the banking system because stricken businesses run short of money to repay their loans. In addition, some Greek workers are not receiving their full paychecks, crimping their ability to repay mortgages or other loans.
The European Central Bank meeting on Thursday could be crucial, if by then Greek lawmakers have passed measures that eurozone creditors are demanding in return for aid. The members of the central bank’s governing council will also want assurances that Greece has enough bridge financing to make a €4.25 billion payment on Greek bonds held by the central bank. The payment, which includes interest, is due July 20.The European Central Bank meeting on Thursday could be crucial, if by then Greek lawmakers have passed measures that eurozone creditors are demanding in return for aid. The members of the central bank’s governing council will also want assurances that Greece has enough bridge financing to make a €4.25 billion payment on Greek bonds held by the central bank. The payment, which includes interest, is due July 20.
If the central bank is willing to provide more emergency cash and perhaps ease the terms of loans to Greek banks, Mr. Iscaro of IHS said, “at least you will see banks reopen and the economy start to work.”If the central bank is willing to provide more emergency cash and perhaps ease the terms of loans to Greek banks, Mr. Iscaro of IHS said, “at least you will see banks reopen and the economy start to work.”