Tags: Secret | Aid | Greek | Banks

FT: Secret Central Bank Aid Props Up Greek Banks

By Michael Kling   |   Tuesday, 22 May 2012 11:36 AM

Secret central bank aid is propping up Greece, The Financial Times reported.

The European Central Bank has quietly — and separately from its better-known rescue programs — used its Emergency Liquidity Assistance to help banks in troubled eurozone countries.

It's not certain how much the ECB has lent through the ELA, but The Financial Times estimates that 100 billion euros ($127.51 billion) has been sent to Greek banks. The central bank doesn't want to reveal how much or, for that matter, where or when it provides the emergency aid.

“You don’t say when you are in an emergency situation, because then you make the situation worse. So I really don’t see the usefulness of being more transparent,” Luc Coene, Belgium’s central bank governor, told The Financial Times.

Eurozone central bankers won't say what collateral banks provided or what interest rates they pay. The emergency fund is supposed to be temporary, yet aid to Ireland has been prolonged, the newpaper notes.

The Financial Times infers that the ELA might not have been revealed if an ECB financial statement last month hadn't mentioned an unexpected 121 billion euro increase in "other claims on euro area credit institutions."

Analysts at Barclays think Greece received 96 billion euros of ELA, Ireland got 41 billion euros, and Cyprus got 4 billion euros.

The ECB may use its power to cut off the emergency aid to persuade Greece to accept bailout conditions.

Greek banks lost much of their capital when a bond swap wiped out most of the value of Greek government debt. The countries four largest banks will receive a capital injection of 18 billion euros through European Financial Stability Fund bonds this week, Reuters reported, citing a senior banker at one of the banks.

"With this 18 billion euros in EFSF bonds we will participate again in ECB liquidity operations," said the banker.

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