The euro has come under additional pressure after reports on Wednesday that the European Central Bank has stopped providing liquidity to some Greek banks as they have not been successfully recapitalised. The ECB only conducts its refinancing operations with solvent banks. Greek banks’ capital is so depleted and many have been operating with negative equity capital. According to ECB regulation, the ECB cannot provide liquidity to banks in such a situation.
“As recapitalisation wasn’t in place, the ECB stopped monetary policy operations,” a euro zone central bank source told Reuters. “They are now in the ELA of the Greek central bank.”
The Greek banks can however resort to emergency liquidity assistance (ELA).
As a result there has been a marked increase in the number of Greek banks depending on emergency borrowing from the Bank of Greece.
The Greek banking system is at risk as many Greek citizens are withdrawing their bank deposits for fear that Greece may exit the euro zone.