The first time the phrase Emergency Liquidity Assistance, or ELA, was used in the context of Greece was in August 2011, when Greece was imploding, when its banking sector was on (and past) the verge of collapse, and just before the ECB had to unleash a global coordinated bailout with other central banks including global central bank liquidity swap and unleash the LTRO to preserve the Eurozone.
As a reminder, this is what happened back then: "In a move described as the "last stand for Greek banks", the embattled country's central bank activated Emergency Liquidity Assistance (ELA) for the first time on Wednesday night."
"Although it was done discreetly, news that Athens had opened the fund filtered out and was one of the factors that rattled markets across Europe. At one point Germany's Dax was down 4pc before it recovered. The ELA was designed under European rules to allow national central banks to provide liquidity for their own lenders when they run out of collateral of a quality that can be used to trade with the ECB. It is an obscure tool that is supposed to be temporary and one of the last resorts for indebted banks."
Raoul Ruparel of Open Europe told The Telegraph: "The activation of the so-called ELA looks to be the last stand for Greek banks and suggests they are running alarmingly short of quality collateral usually used to obtain funding."
He added: "This kicks off another huge round of nearly worthless assets being shifted from the books of private banks onto books backed by taxpayers. Combined with the purchases of Spanish and Italian bonds, the already questionable balance sheet of the euro system is looking increasingly risky."
As a further reminder, this is how cryptically little the ECB has to say about its "last-ditch" liquidity bailout program:
Euro area credit institutions can receive central bank credit not only through monetary policy operations but exceptionally also through emergency liquidity assistance (ELA). ELA means the provision by a Eurosystem national central bank (NCB) of
- central bank money and/or
- any other assistance that may lead to an increase in central bank money
to a solvent financial institution, or group of solvent financial institutions, that is facing temporary liquidity problems, without such operation being part of the single monetary policy.
We bring this up because things in Greece just went bump in the night. Again.
Recall that as we reported three days ago, while Greece refused to admit that it was suffering a bank run ahead of a potentially game-changing election, it did report that "most taxpayers have chosen to delay their [tax] payments, given that the positions of the two main parties leading the election polls are diametrically opposite: Poll leader SYRIZA promises to cancel the ENFIA and even write off bad loans, while ruling New Democracy acknowledges the difficulties but is avoiding raising issues that would generate problems and fiscal consequences."
Well, yesterday we got some more details on the collapse in tax payments when Kathimerini reported that indeed as feared, Greek tax remittances have plunged by up to 80% compared to last year, in the process making a mockery of any Greek reforms.
Finance Ministry officials believe there will be no problem meeting the targets of the bailout program as far as the general government primary surplus, which amounts to 1.5 percent of gross domestic product for 2014, is concerned. There are, however, worries regarding the 2015 budget, as the year has got off to a terrible start in terms of revenue collections.
The target for January is 4.5 billion euros, but tax officials report that they saw no activity that would support that goal in the first 10 days of the month. Sources say that the decline compared to the first 10 days of 2014 ranges between 70 and 80 percent.
That's not the bad news. The bad news is that as we also speculated, and as Greek officials tried to cover up as usual, the Greeks have resumed doing what they do best any time their country is facing a grand crisis: walking to the bank and withdrawing what little deposits they have left. Or rather running to the bank.
Which brings us back to the topic of the Emergency Liquidity Assistnace, which as Kathimerini reported moments ago, at least two Greek systemic banks have reportedly resorted to, indicating that the liquidity situation in Greece is once again as dire as it was in the depth of the European collapse.
Two Greek systemic banks reportedly submitted the first requests to the Bank of Greece for cash via the emergency liquidity assistance (ELA) system on Thursday, in response to the pressing liquidity conditions resulting from the growing outflow of deposits as well as the acquisition of treasury bills forced onto them by the state.
Banks usually resort to ELA when they face a cash crunch and do not have adequate collateral to draw liquidity from the European Central Bank, their main funding tool. ELA is particularly costly as it carries an interest rate of 1.55 percent, against just 0.05 percent for ECB funding.
The requests by the two lenders will be discussed by the ECB next Wednesday.
Bank officials commented that lenders are resorting to ELA earlier than expected, which reflects the deteriorating liquidity conditions in the credit sector.
Besides the decline in deposits, banks were dealt another blow on Thursday with the scrapping of the euro cap on the Swiss franc. Bank estimates put the impact of the euro’s drop on the local system’s cash flow at between 1.5 and 2 billion euros.
Deposits recorded a decline of 3 billion euros in December – a month when they traditionally expand – while in the first couple of weeks of January the outflow continued, although banks say it is under control.
A major blow to the system’s liquidity has come from the repeated issue of T-bills: In November the state drew 2.75 billion euros in this way, in December it secured 3.25 billion euros, and it has already tapped another 2.7 billion in January. Of the above amounts, a significant share – amounting to 3 billion euros according to bank estimates – was in the hands of foreign investors who will not renew them, so they have to be bought by the Greek banks.
Local lenders had also resorted to ELA in 2011 to cope with the outflow of deposits and consecutive credit rating downgrades of the state (and the banks) that made Greek paper insufficient for the supply of liquidity by the Eurosystem. In May 2012, due to the uncertainty of the twin elections at the time, local banks drew 124 billion euros in ELA to handle the unprecedented outflow of deposits.
And just like that, it's deja vu all over again, and the worst days of the summer of 2011 are ahead of us once more, only this time Draghi's "Whatever it takes" unconditional OMT bazooka has conditions, and anyway after today's SNB fiasco, what a central bank threatens, warns, begs or even does, may no longer even matter.