Moody's Warns Of "Severe Greek Bank Cash Shortage" Due To Accelerating Deposit Flight

Tyler Durden's picture

We have long been warning that by fat the biggest risk to the Greek banking system is not whether or not its retains its access to the ECB funding window (it will, probably even in the case of a Greek bankruptcy through covert pathways), but domestic confidence in the financial institutions as expressed by deposits, or rather, the lack thereof. Today, as part of its Weekly Credit Outlook, Moody's issued for the first time a very stark warning that should the rate of attrition in domestic deposits (and to see where these are going merely look at the daily EURCHF chart) persist, or accelerate, the results would be disastrous. To wit: "a sustained decline of deposits by more than 35% (roughly equal to
the consolidated banking system’s liquid assets and ECB funding
availability) within a short period of time, would cause a severe
shortage of cash among banks." 
Bottom line, it is unclear if even the existing deterioration in the deposit base can ever be undone due to the banks unprecedented reliance on the ECB for day to day funding, now that the bulk of domestic Greek capital is stashed away, safely, somewhere in the Swiss Alps: "With the decline in customer deposits, we expect Greek banks to find it increasingly challenging to reduce their ECB funding dependence, which is their primary objective based on their funding plans committed to the Central Bank of Greece."

From Moody's:

Our discussions with rated Greek banks last week and public information lead us to estimate that private-sector customer deposit outflows in the banking system amount to around 8% since the beginning of 2011, which is a key credit negative for Greek banks. The potential for further deposit outflows constitutes a major liquidity risk for banks as depositor sentiment is affected by negative political developments and Greece’s capability for timely repayment of its debt obligations. We expect Greek banks to find it increasingly challenging to lower their dependence on ECB repo funding as deposit balances continue to decline.

Private-sector deposits have been declining since late 2009, while outflows in May and June accelerated, as shown in the exhibit below. Greece’s heated political tensions (government reshuffling and resistance to the new austerity package) and the uncertainties regarding the Troika’s (European Union, European Central Bank, and International Monetary Fund) commitment to continue funding support to Greece are driving deposits elsewhere.

However, the roughly 8% deposit decline so far in 2011 also reflects the “cash-burn” effect of the country’s recession, with the economy expected to decline by 3.8% this year. We estimate that more than half of the year-to-date deposits decline is due to a steady draw-down of deposits to compensate for lower income by individuals and companies.

Based on recent media reports, confidence-sensitive depositors concerned about local banks’ financial health have also been transferring funds abroad and converting their deposits into gold coins, while others have been placing their cash into bank safety-boxes. The increasing liquidity risk for the banks is compounded by the volatile nature of government deposits, which are not incorporated in the exhibit above, and account for 6.7% of total deposits in April 2011 and are utilised to repay maturing government securities.

An acceleration of deposit outflows is one of the key risks for Greek banks and something that is beyond the control of either local or European authorities. A sustained decline of deposits by more than 35% (roughly equal to the consolidated banking system’s liquid assets and ECB funding availability) within a short period of time, would cause a severe shortage of cash among banks. This estimate takes into account the imminent availability of an additional €30 billion of government guarantees that can also be used for ECB funding, providing an extra buffer to any future deposit outflows, although these funds are yet to be dispersed. The availability of ECB funding through repo transactions would mitigate liquidity pressures, provided this method of funding remains available in the event of a sovereign default.

ECB funding has increased significantly since January 2010, as capital markets and the inter-bank market are still closed to Greek banks. The latest available data show that at the end of April 2011, overall ECB funding stood at €87 billion, comprising more than 21% of the banks’ total liabilities, compared to 59.4% for deposits. With the decline in customer deposits, we expect Greek banks to find it increasingly challenging to reduce their ECB funding dependence, which is their primary objective based on their funding plans committed to the Central Bank of Greece.

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slow_roast's picture

Great, this means that in the monetary circle jerk China will get new orders for printing presses; globalization.

FOREX loop.'s picture

China has the chance to really become a scary world power... There are some serious national moves affoot.

Silver not looking good right now.

I'm not as optimistic that it will bounce back. I think Gold will slay the chinese dragon.

MFL8240's picture

Yup, but the US is busy with gay rights, confiscation of guns, overlaoding the sytem with illegal immagrants, handouts to the non producers and phony meetings on debt celings because of gross mismanagement to partake in the European mess.  China, for all its faults and stupid moves will come out smelling like a rose no matter what happens in Greece.

French Frog's picture

There must be a trading desk somewhere watching ZH that will push the Euro up 50/70 pips everytime euro-bearish news are published in here


snowball777's picture

Yes, that's why their interbank rates are soo low...all that trust just oozing out all over the place.


doesmybuttlookfatinthis's picture

Less then 30 million ounces at the comex and you think silver is going take a hit? 

MFL8240's picture

Never stopped the criminals at JP Morgan from naked shorting, so, why not??

SheepDog-One's picture

That road isnt an autobahn its a cul de sac.

scatterbrains's picture

I don't understand..  can't they just print Euros like Ireland did/does ?


ISEEIT's picture

I was wondering why the EUR just took a 60 pip moonshot. Now I understand!

jkruffin's picture

Gold is going to take about a $100-$200 haircut in a matter of days

GetZeeGold's picture


How is gold going to take a haircut if everyone is buying it? Except you of course.

This thing just went total retard.

SARKOZY: French banks will roll over Greek debt for 30 years...



GetZeeGold's picture


I can already tell you what tomorrows news will be.....default.

The 50 year old retired Greek sitting on the beach needs to get a job. The French and Germans are done paying his bills.



BobPaulson's picture

Every society has always had parasites who do nothing. It used to be the church. Don't know how you get rid of them if people don't mind giving money to them.

Jambo Mambo Bill's picture

Silver then is going to what... 18?

Bindar Dundat's picture

Why? I mean that comment does not fit the model....

dbach's picture

I agree with jkruffin, if there is a liquidity crisis and money is destroyed then cash will be king. I think it's pretty obvious when, as ZH has pointed out, there are treasuries trading at 0%. People want to "not lose money", what better way than to have cash?

SheepDog-One's picture

What better way? A vault full of universally accepted gold and silver coins. If people think 'cash' is a stor of value, youre in for some real tough times quick.

dbach's picture

I understand your concerns about a debt backed money, however if there is less money around then there is less of it to purchase any good, including gold. If money supply increases (thanks Bernanke) then nominal asset prices go up, money supply decreases through withdrawn deposits or default then nominal prices decrease. The only caveat is that gold is a good alternative to paper money, so it would be a lower beta deflation play.

Quintus's picture

Think it all the way through.  If there is less money around then all the world's banks will be in the same position that Moody's is warning Greece about.  There may be less of it around, and people may well prize it above all else, but they won't be able to get any because all the banks will have shut down due to there being too little money available for them to keep the doors open.  Where then do people turn?

There is a tipping point where 'Less money available' stops being a plus for those with large bank accounts and becomes a disaster because the 30x leveraged financial institution that is holding their deposits will not survive the liquidity crunch.  Bye bye electronic 1's and 0's.

dbach's picture

I think if you, rather than buy an oz of gold right now, put the equivilent amount of cash under your mattress, you would be better off in 3-6 months. In 10-20 years is a different question and that will be answered by how we deal with our debt problems.

SheepDog-One's picture

Doesnt matter how much money there is when the banks are simply hoarding it in their vaults.

Quintus's picture

Not sure about that.  Who's to say the government won't try to save the system by re-denominating the currency into 'New Dollars' or whatever at a 100:1 rate, rendering the pile of old-style FRN's under the mattress totally worthless.

Central Wanker's picture

The existence of the banking system is nowadays 100% dependent of the existence of inflation. The TPTB will not allow failure of the banking system. To keep the banks "alive", they will allow the failure of the fiat currencies.

pan-the-ist's picture

This is THE question.  If TPTB have enough cash, they might let contaction happen to squeeze real wealth (property, gold, etc) out of our hands.  We have to eat.  How evil are your masters?  What do they gain if they allow hyperinflation to happen?

dbach's picture

Good point. The banks used to get ahead in the 1800's by allowing (creating) waves of deflation to reposses and resell to further indebted people.

i-dog's picture

This time IS different! There will be no further crests after this 'wave'.

TPTB are not planning on an economic recovery for the general population of America this time. Have you seen any sign of government recently enacting policies to bring jobs back? Or reduce spending by a meaningful amount? Or develop alternatives to imported oil?

If they succeed in crashing the American economy next year (I think they are trying to prolong the agony until then), then the security infrastructure that is growing daily will immediately be rolled out in full force: DHS, TSA, FEMA, National Guard, state troopers, county sheriff departments, military, mercenaries, and Canadian and Mexican support (under NAFTA/NAU arrangements, already agreed). The 850,000-strong (as of 12 months ago!) surveillance team will also be assisting to nominate candidates for the FEMA camps.

"850,000 Americans Now Have Jobs In Top Security Organaizations and No-one Has Any Idea What They Do (Washington Post, July 2010)"

During a paradigm shift, the rearview mirror is not the best planning tool!

End the Feds!!
End the European 'Experiment'!!
De-fund the IMF!!

Jonas Parker's picture

Oh goody!!! We get to go to Camp Fema next summer!!!  [/SARC]

Central Wanker's picture

In the 1800's they did not have derivatives. Now those modern time marvels would blow the entire banking system up if we entered deflation. Hence, no deflation.

nodhannum's picture

With a fertile farm near the coast of NC (sandy loam), a John Deere and a supply of fresh water some 4 to 5 feet below, the Bernak will have one hell of a time starving me or my heavily armed neighbors out.  I can go 0,25 miles down to our dock on the sound and put some fish nets out..yum, yum.

Almost Solvent's picture

The only long term flaw I can see would be the John Deere when it runs out of fuel/oil/hydraulic fluid and there is no more available.



shortus cynicus's picture

Money put in circulation stays there, but unfortunately on foreign accounts - China, Switzerland have it all and is not willing to spend it until they are threatened with the only working argument: debt free money counterfeiting printing.

Then they came to their signs and start buying whatever possible in EU and USA allowing us to pay debt back.

Nobody expects Spanish Inquisition inflation.

MFL8240's picture

On what?  People want more fiat junk paper?

Central Wanker's picture

Gold is going to take about a $100-$200 haircut in a matter of days


That, if anything, would be "transitory". Act accordingly.

Vinny's picture

Possible. Platinum took level of fall last week.  Whoever has been manipulating platinum, must have a reason for the desire to lower PM's value. Likely whoever this is, wants to buy it at a lower price. Who?

GeneMarchbanks's picture

Bank Run! Bitchez



* seriously though, good to see Moodys on top of things. They're an amazing institution unlike the EU and IMF.

SheepDog-One's picture

Yes Moodys is Johnny on the spot with Greek and Spanish banks....too bad they COMPLETELY missed the 2008 bank meltdown though.

nodhannum's picture

I think that they went to a revival meeting and caught religion.  That being said, the state will now find something amiss to crush them if they don't play ball.

oogs66's picture

Feels like the politicians and bankers are getting desperate to come up with new ways to stick the losses to the taxpayers, but its not working so well anymore.

Gandalf6900's picture


excuse me, why are the greek people afraid they will never ever see their precious money again? Isn't the bank supposed to hold your money for you for a small fee and pay you some interest in exchange for the availability to lend that same money...I don't understand what went wrong with this simple formula, is somebody bending the rules and risking other peoples money on foolish ideas, nah I refuse to entertain such a though...greek people your money is safe where it is.....

Gandalf6900's picture


run for your life bitchiz, RUNNNNNNNN

Commander Cody's picture

Sarcasm, or don't you understand fractional reserve banking?

Urban Redneck's picture

When you deposit money at a bank, THE MONEY BECOMES THE PROPERTY OF THE BANK and YOU BECOME A CREDITOR OF THE BANK.  The fractional reserve fiat ponzi upon which Greek banks are built is Greek sovereign debt.  Greek people should be very afraid, if they understand basic banking.

Almost Solvent's picture

That is why you see that little FDIC sign at every US bank and people *might* understand that means they get back up to the limit, but they don't understand *why* that FDIC insurance is necessary in the first place.

Banks & credit unions can easily go into your account and *offset* anything you owe to that institution if you have stopped *voluntarily* paying that institution.

Urban Redneck's picture

But the Deposit Insurance situation in Greece is very different-

Even if Greek individuals move their money out of Greece, Greek employers still use Greek banks for next week's paycheck, and Greek companies use Greek banks to pay for food and energy imports.  Also, an ATM card from another Eurozone country is useless if the local ATMs don't dispense cash or the ATM owners' bank is persona non grata at the BIS.  To backstop against a Greek bank run there is only the HSGF (Greek FDIC, and just as under capitalized), when it runs out of money it can't go to G-Pap and ask him to print some more Euros.  Whoever is PM of Greece will have to crawl like a bitch and beg the ECB for a bailout.  Since the rather pathetic collateral that the Greek banks are currently using for ECB repos will no longer be eligible at the ECB, the terms demanded to put Euros in the hands of the masses after a Greek default would be far more onerous than anything even discussed now.

Default is sounds nice, but Greece is nothing like Iceland or Argentina.  Greece is a member of the Eurozone, and is incapable of devaluing its adopted currency.  Default coupled with an exit from the Eurozone/EU would allow/force Greece to devalue its currency but the resulting hyperinflation will make imported food and energy unreachable to broad segment of the population.  The biggest obstacle is that all the preparations would have to made and completed in secret BEFORE defaulting, and the government in question apparently has difficulty even importing a cleaning crew to spruce up its escape tunnels without spilling the beans.

SheepDog-One's picture

But Greece was confirmed totaly FIXED only a few days ago! WTF!! :D

White.Star.Line's picture

This is the new age of electronic money.

Just add a few 1s and 0s and fix the fricking problem!

SheepDog-One's picture

Yes as prices rise a corresponding amount. Works great, just ask the Bernankster.