For Greeks The Nightmare Is Just Beginning: Here Come The Depositor Haircuts

Tyler Durden's picture

With capital controls already imposed on Greece, some have wondered if this is as bad as it gets. Unfortunately, as the Cyprus "template" has already shown us, for Greece the nightmare on Eurozone street is just beginning.

As a reminder, over the past few months there have been recurring rumors that as part of its strong-arming tactics the ECB may eventually move to raise the haircuts the Bank of Greece is required to apply to assets pledged by Greek banks as collateral for ELA. The idea is to ensure the haircuts are representative of both the deteriorating condition of Greece's banking sector and the decreased likelihood that Athens will reach a deal with its creditors.

Flashback to April when, on the heels of a decree by the Greek government that mandated the sweep of “excess” cash balances from local governments to the Bank of Greece’s coffers, Bloomberg reported that the ECB was considering three options for haircuts on ELA collateral posted by Greek banks. “Haircuts could be returned to the level of late last year, before the ECB eased its Greek collateral requirements; set at 75 percent; or set at 90 percent,” Bloomberg wrote, adding that “the latter two options could be applied if Greece is in an ‘orderly default’ under a formal ECB program or a ‘disorderly default.’” 

While it’s too early to say just how “orderly” Greece’s default will ultimately be, default they just did if only to the IMF (for now), in the process ending their eligibility under the bailout program and ending any obligation by the European Central Bank to maintain its ELA or its current haircut on Greek collateral, meaning the ECB will once again reconsider their treatment of assets pledged for ELA and as FT reported earlier today, Mario Draghi may look to tighten the screws as early as tomorrow:

When the Eurozone’s central bankers meet in Frankfurt on Wednesday, they could make a decision which some officials fear could push one or more of Greece’s largest banks over the edge.


The European Central Bank’s governing council is poised to impose tougher haircuts on the collateral Greek lenders place in exchange for the emergency loans. If the haircuts are tough enough, it could leave banks struggling to access vital funding.


The ECB on Sunday imposed an €89bn ceiling for so-called emergency liquidity assistance, effectively putting the Greek banking system into hibernation. If, to reflect the increased risk of default, the ECB now applied bigger discounts to the Greek government bonds and government-backed assets which lenders use as collateral, that could leave banks struggling to roll over those emergency overnight loans.


Some on its policy-making governing council feel that Athens’ exit from a programme — notwithstanding its 11th-hour request for an extension and third bailout — leaves the ECB with little choice but to take actions that would, in effect, cut the Bank of Greece’s emergency support to Greek lenders.


Some eurozone officials fear that the position at Greece’s biggest lenders is so tight the ECB could be in danger of pushing some weaker banks over the edge if tougher haircuts are imposed.

Recall that in mid-June, Greek banks were said to have had as much as €32 billion in ELA eligible collateral that served as a buffer going forward. Since then, the ELA cap has been lifted by around €5 billion, meaning that a generous estimate (and we say "generous" because according to JPM, Greek banks ran out of ELA collateral weeks ago) puts the buffer at a little more than €25 billion. 

As the haircut rises, that buffer disappears and once the discount applied to the collateral reaches a certain level, an implied depositor haircut materializes. Why? Because by simple balance sheet rules, assets must match liabilities (leaving a token €0.01 for shareholder equity) and once the haircuts eat through the collateral buffer, the implied value of Greece's pledged assets (currently at around €125 billion) will quickly fall below the value of Greek banks' unsecured liabilities which sit at around (but really under) €120 billion as of the date capital controls were imposed in Greece over the weekend. These liabilities are better known as "deposits."

At that point, a depositor haircut is required.

Although the collateral haircuts aren't public, the face value of pledged collateral is (it can be found on the BoG's balance sheet) as is the ELA cap, meaning it's possible to estimate the current haircut and, starting with the assumption that a generous €25 billion buffer remained as of the ECB's Sunday freeze of the ELA ceiling at €89 billion, project the implied depositor bail-in for different collateral haircut assumptions.

Here is the summary sensitivity analysis indicating what a specific ELA haircut translates to in terms of deposit haircut.


Another way of showing this dynamic is presenting the ELA haircut on the X-axis and the corresponding deposit haircut on the Y-axis once the critical "haircut" threshold of 60% in ELA haircuts is crossed.

As can be seen raising the haircut to 75% implies a €33 billion (or 37%) depositor bail-in or "haircut", while raising the haircut to 90% implies a €67 billion (or 55%) hit.

Note that the latter scenario looks quite familiar to what happened in Cyprus, and indeed that's not at all surprising because if, as Dijsselbloem himself said, Cyrpus is a "template", then the next step after capital controls is a depositor bail-in. 

And while we wish we could have some good news for the Greek population, this outcome may have been preordained by none other than Goldman whose Hugh Pill, who on June 28 suggested the following:

The core constituency of the current Greek government -- pensioners and public employees -- has enjoyed the first claim on remaining government cash reserves. Only when those cash reserves are exhausted will that constituency face the direct implications of the liquidity squeeze the political impasse between Greece and its creditors has created. And only then will the alignment of domestic political interests within Greece change to allow a way forward.

And as Goldman's former employee and current head of the ECB is about to have his way, the pensioners and public employees will be the first to suffer - first with capital controls and then with ever increasing haircuts on their deposits.

In other words, in order for the Troika to finally achieve its goal of either forcing Tsipras to relent or inflicting enough pain on Syriza's "core constituency of pensioners and public sector employees" to compel them to drive the PM from office, after capital controls come the depositor haircuts, first small, then ever greater until Greece collectively Cries Uncle and begs Europe to take it back while presenting Merkel with Tsipras and Varoufakis' heads on a proverbial (and metaphorical, we hope) silver platter. 

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Fun Facts's picture

The IMF will be sending ISIS to Greece.

OldPhart's picture

Now this is what I've been waiting for...who is losing their ass?  This is going to be fun!

Publicus's picture

The bank will reopen with Ruble and Yuan. There will be no haircut.

TeamDepends's picture

A little off the top?!?!? My brain is showing!!!!

Deathrips's picture

"Must make example of greece so other world slaves dont get any ideas."




I expect alot of pain..



Bilderberg Member's picture

Wow, the "push people into a corner" plan...That one has a spotty track record

El Vaquero's picture

Yup.  Sometimes they curl up into a ball and quiver and others they come out fighting 10x harder than you thought possible. 

Socratic Dog's picture

I pray the NWO has met its Hot Gates.

Supernova Born's picture

Greece is wearing a toupee.

Bald is beautiful, bitchez.

HardlyZero's picture

Varoufakis bald theory. heh.

Automatic Choke's picture

"just a little off the top"....

...isn't that what they promised Marie Antoinette?

bigkahuna's picture

there was plenty of time to get out of the way of this........

philipat's picture

The biggest advantage that Tsipras and Varoufakis have is the Institutions are thinking inside a very small box using standard "Banker-think". If they start demanding Depositor bail-ins, my bet is that T&V will nationalise the Banks and wipe out the Shareholders and Bond Holders but protect the Depositors. They will then permanently default on all external Debt and start again with a new "Public" Bank to provide genuine socially value-added Banking services with Capital from China and Russia. Implicit in this would be leaving the Eurozone but on balance that's a good thing if Greece is to have any future as a free sovereign State. They would have a few difficult years and would not be able to go to the Bond markets for a while but I'm sure that Russia and China would help them through the tough years if only for their own strategic reasons. And, of course, with no debt-servicing costs, a Balanced Budget would be much easier to achieve, although genuine reforms must be made: payment of taxes for instance. I would suggest a low standard rate of Income tax and then Sales/VAT taxes to collect the bulk because they are more difficult to evade.

So, next move is yours "Institutions"........

logicalman's picture

There was plenty of time to prepare for this, but there was no way to get out of it.


graneros's picture

Read and heed what the L/man says here while you still have time.  You don't have to go full blown commando with armored cars, bug out bags stashed everywhere, or enough armarments to start a minor war.  Get a few gold and silver peices, some dehydrated food, pito beans, rice, water, medicale supplies, and some clean stored warter. Do easy and cheap things NOW, cause just like the Greeks or any storm survivors who weren't prepared you will sure as hell wish you had.

Keyser's picture

As the song goes, you can checkout, but you can never leave... 


ebworthen's picture

A "haircut" or a "bail-in", what soft euphamisms for THEFT.

Q.  What does anyone owe anyone when money is created out of thin air and banks/corporations/insurers are:  bailed out, don't have to pay their debts, and are given free money from the Public Treasuries at 0.25% to lend out at 4.5%-29%?

A.  Abofuckinglutely NOTHING!

i_call_you_my_base's picture

Completely agree. They have made money worthless by shedding light on its contrivance.

The Greeks should just say that the europeans' claims on collateral are invalid.

Son of Loki's picture

" If you don't hold it, you don't own it, " will be a hard lesson for many of them. You can bet the wealthy Greeks pulled their money and gold out of banks there long ago.

Remember reading about all those Greeks renting safe deposite boxes in the Netherlands ~ 2 years ago and or storing their gold in vaults somewhere in Scandanavia? Those were the wise Greeks.

Philo Beddoe's picture

Wisest Greek I ever met said....why would I do that, she has a pussy?  

HowdyDoody's picture

The Grreks need some fiat collateral to back their fiat money. Run off 1000's of copies of deeds to a small island with the acreage increased by a factors of 10-30. That should help.

Megas Napoleon's picture

Some would say wise some would say that they were the ones that were stealing all the european and greek money for decades and passed the bills to the rest.

logicalman's picture

Taxation is theft.

It is indistinguashable from robbery or extortion.

Fractional reserve banking is straight out fraud.

Fiat money can only work when backed by the threat of violence.

Criminals are now in charge.

Hedge accordingly

Oldwood's picture

But we were told that we had voluntarily assumed this responsibility, even though none of us seem to remember doing it. It must have been while under hypnosis! They keep telling us it's a democracy but I don't recall voting for any of this shit, and everything I did vote for that passed was struck down by SCOTUS as unconstitutional. That, after Barny Frank told us that the constitution didn't matter as long as government was only trying to help. The "right" to gay marriage may not be in the constitution, so our wise judges decided it would be a good idea anyway. That's showing us what they think of us. Just shut the fuck up and do what we are told. THEY KNOW BETTER.

indygo55's picture

As Mike Tyson said "Everyone's got a plan till you get punched in the mouth."  The people might revolt not against the Tsipras but against the ECB. You have Russia in there for sure and then there's China. Haven't seen those scenerios posted too much. I sure hope they have a plan X cuz this ain't lookin too good for anyone. 

Supernova Born's picture

Russia may be considering not what Greece will cost them, but what Europe will lose from a Grexit.

Do it for Nudelman.


knukles's picture

What sucks about this whole thing is that the depositor in a bank (Yes, I fully understand the accounting, discounted present values, etc. and relationship between the banks, their holdings of governments and bond values, believe me.) wind up being on the hook for shennanigans at the national level.
That's the truly criminal thing about these charades.
Had those monsters in Brussels have never been set loose, this would not have happened.  The Greeks would simply be living as they always had with an ever depreciating national currency

Go for the non-EU alignment, folks.  You're being personally bled dry by your "friends and allies" for the bankers.

disabledvet's picture




BigJim's picture


If they have publicly owned land - parks, port facilities, schools, hospitals - there is plenty left to be collateralised.

Megas Napoleon's picture

Yes but they must come with warships, bombers and tanks once again to get them.

p00k1e's picture

Did you see the Greek pensioner on the TV complaining he hasn’t eaten in two days because he lost his ATM card.

IridiumRebel's picture


Prior planning prevents piss poor performance....and hunger.

_SILENCER's picture

Good God I can't even get my head around that. Why would you ever make yourself a ward of the system?

TheMeatTrapper's picture

"Why would you ever make yourself a ward of the system?"

The Europeans have been raised with a belief in cradle to grave government protection. They know nothing else. 

We are not far behind, and Dear Leader Obama is making great strides forward.

bigkahuna's picture

dear leader and his handlers are gonna start some shit...

Joe Camel's picture

Bush and his GOP pals certainly helped by passing Medicare Part D, which is the major cause of the skyrocketing costs of prescription drugs. Everyone will need the drugs as they grow older.

Philo Beddoe's picture

The Old Man: You mean to say that those people know ahead of time when they're gonna die?

Logan 5: That's right.

The Old Man: Oh, that's silly. What's the reason for that?

Logan 5: That's the way things are. The way things have always been.

The Old Man: Yeah, it takes all the fun out of dying.

Statetheist's picture


indygo55's picture

Propaganda. There's always propaganda. 

Megas Napoleon's picture

Well the TV could have shown more pensioners that the last 5 years hadn't something to eat or afford their medication due to very low pensions and high prices.


Kirk2NCC1701's picture

knucks, although I totally agree with you, I see it in the context of the Bigger JPG, and assert the following hypothesis:

1. Greece is a Testbed/Template of things to come in other Western countries and their bankrupt Governments and criminal CBs:  The name of the Game is "Systemic Asset Transfer and Asset Stripping"

2. Either Greece will fight them and things will get very ugly or even 'bloody', just to teach would-be copy-casts (Portugal, Spain, Italy, UK, France) a graphic lesson and submit like neo-Serfs to their neo-Feudal globalist Masters/Overlords.

3. Or Greece caves, does not pass GO, does not collect $200B, and goes straight to Serfdom Jail. As intended.


The ONLY way Greece can win, IMHO, is if they DEFAULT by actually REPUDIATING the ODIOUS DEBT, pull an Iceland, screw the Banks, and jail Bankers (and save the People). Make the Bond Holders eat the losses, then nationalize the Banks. For a while.

They then need to prevent Maidan II that would be headed their way, and jail or hang its perps. After that they need to join the AIIB -- either as an Associate Member of some sort, if possible, or as a Client.

They will also need to pivot EAST and make deals with their new BFFs: Turkey, Russia, China.

knukles's picture

Agreed, Kirk  100%
Most interestingly, so many people reject the option as "un-doable" (If that word works.  It's not the one I'm thinking of, but I can't think of a better one right now) when in fact much of the reproachment, approachment, alternatives and options seem to have been already instituted.  The cards have been dealt and I'm strongly of the opinion that the EU & Cie. are myopically focused upon repayments, which to them are the big near term risk... the EU banking system is clogged with bad paper, etc.  Juxtaposed, I believe the Greeks view the repayments as but (consistent with Games Theory a la Nash and Tyler's wonderful exposition of the Dollar Auction) a mere lever for the greater win of remaining a ward of the EU's benefits while repudiating on their debt and reissuing the Drachma (or other). 
Which all implies to a very large part, the very same pivot which you suggest .... but a matter of degree.

silvermail's picture

They then need to prevent Maidan II that would be headed their way, and jail or hang its perps.


To this end, the Greeks should immediately close all of the US Embassy in Greece. Otherwise, we will again see the snipers on the streets of next capital city.