Bloomberg News

ECB Data Show Possible Jump in Borrowing by Cypriot, Greek Banks

April 04, 2013

A 26 percent jump in a line item on the European Central Bank’s balance sheet is pointing to a rise in emergency borrowing by banks in Cyprus and Greece.

“Other claims on euro-area credit institutions” rose to almost 89 billion euros ($114 billion) for the week ended March 29, up from a 12-month low of 70 billion euros two weeks earlier. The balance-sheet item, published yesterday on the ECB’s website, includes Emergency Liquidity Assistance, or ELA, provided by national central banks when a country’s lenders don’t have enough collateral to borrow directly from the ECB.

Cyprus agreed March 16 to a bailout from the European Union that included a tax on all bank deposits, a condition that left politicians racing for almost two weeks to revise the aid package and exempt insured funds from losses. Some money transfers from the banks were allowed while the firms were closed during the talks. The banks opened last week with capital controls limiting withdrawals and overseas transfers.

“Even if this increase is not all due to ELA, most of it probably is,” said Giuseppe Maraffino, a fixed-income strategist at Barclays Plc in London who tracks the numbers. “This could be showing that deposits are flowing out of Cyprus and being replaced by central-bank funds.”

Irish, Greek and Cypriot banks were the ELA facility’s main users until February, when Ireland liquidated a bank relying on the funds and transferred the liability to another part of its balance sheet. Greek banks had 21 billion euros of ELA assistance and Cypriot banks held 9 billion euros by the end of that month, the latest for which national central banks’ data is available.

Spain, Portugal

In addition to ELA funds, the other claims item includes transactions such as repos related to another balance-sheet item and legacy lending by central banks of new euro members. The difference between the amount of other claims and total ELA lending has changed little in the eight months through February. The ECB doesn’t disclose a breakdown by country.

Spanish and Portuguese central banks’ balance sheets also show signs that their domestic institutions are using ELA funds, though neither country has acknowledged it. Other claims on credit institutions stood at 2 billion euros for the Bank of Spain in February and 1 billion euros for Bank of Portugal.

All 17 member central banks’ balance sheets are consolidated in the ECB’s. While the ECB releases the eurosystem financials weekly, member institutions publish their figures monthly. The true extent of ELA borrowing by Greek, Cypriot, Spanish or Portuguese banks won’t be clear until the national balance sheets are revealed later this month or in May.

Deposit Flight

Under a final agreement with the EU, Cyprus is imposing losses of as much as 60 percent on uninsured deposits at two of its largest banks, while sparing insured funds. The decision to burn some depositors and restrict money movements will hurt confidence in other weak economies and banking systems of the euro zone, ratings company DBRS said in a report last week.

“During the current period of low-to-no growth in Europe, it is certainly possible that a run on Cypriot deposits could spread, in spite of existing or future controls on capital,” wrote Fergus McCormick, head of sovereign ratings at DBRS in New York.

A total of 378 billion euros was pulled from the banks in Ireland, Spain, Portugal, Greece and Italy in the 13 months that ended in August, according to data compiled by Bloomberg. The flight was reversed after the ECB pledged to buy government bonds of countries that apply for aid and agree to reforms.

Euro-zone banks’ direct borrowing from the ECB fell last week by 2 billion euros to 904 billion. That figure has declined since June, when it peaked at 1.26 trillion euros.

Spanish and Italian banks have been the biggest borrowers of ECB cash. In February, Spanish banks were borrowing 272 billion euros from the central bank, and Italian banks had 281 billion euros.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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