Greece Just Lost Control Of Its Banks, And Why Deposit Haircuts Are Imminent

Tyler Durden's picture

Yes, Greek banks may have been insolvent - something that was clear since the first bailout of 2010 - but at least the Greek state had control over them: as such it could have mandated mergers, recapitalizations, liquidity injections, even depositor bail-ins (perhaps the harshest lesson for the ordinary Greek population as a result of this latest crisis is that deposits are not "cash in the bank" but liabilities of insolvent financial organizations).

Starting on Wednesday that will no longer be the case.

Because while Greek banks will maintain their capital controls for months and withdrawals will be limited to €60 or less for months (the ECB is well aware that any boost to the ELA will result in a promptly surge in deposit outflows until the new ELA ceiling is reached, and so on ad inf) the one key change on Wednesday when the Tsipras government, whose coalition no longer has a majority in parliament and will have to rely on opposition votes, votes through the humiliating Greek "pre-deal" to unlock negotiations for the promised €86 billion in bailouts (which will be used almost entirely to repay the Troika) is that it will hand over the keys of Greek banks to the ECB.

Here is Reuters with this little known fact:

One of the preconditions imposed on Greece for a deal is that it signs into law European rules that would put euro zone authorities at the ECB and in Brussels, rather than Athens, in charge of identifying and closing or breaking up sick banks.

 

This in turn could lead to a shake-up of the sector that could see some banks close, with losses pushed onto bondholders and possibly even large depositors. In such circumstances, there would be little that Athens could do to prevent this.

 

One European official had told Reuters that the number of big banks in the country could be reduced from four - National Bank, Piraeus, Eurobank and Alpha - to as little as two.

Keep in mind the primary leverage the ECB had over the Greek government was the hint that if only Greece agrees to the terms, the European Central Bank just may be nice enough to ease ELA haircuts and eventually boost the ELA ceiling to allow the phasing out of capital controls and permit Greeks access to their savings.

This will not happen.

Unfortunatley, the moment the Greek government votes through the "deal" required by Summit document SN 4070/15, the Greek government will not only hand over sovereignty to €50 billion of Greece's choicest assets to some escrowed fund controlled by Belgium and designed to liquidate Greek assets to repay the Troika, it will also give up all control of the nation's €120 billion or so in leftover personal and corporate deposits, also known as unsecured liabilities.

And since the banks are undercapitalized by at least €25 billion, and realistically over €60 billion, if one takes into account NPLs which at 50% are a very optimistic estimate for a country in depression for 6 consecutive years, the first decision the ECB will do once it realizes the sorry state of financial affairs in Greece is to do precisely what the government could have done but did not have the guts when it still had control: overnight it will out about 50% of Greek depositors.

In other words, Greece is about to hand over the keys to the only thing that is forcing it to hand over the keys.

Unfortunately for Greece, there will be absolutely nothing its government can do to avoid this because on Wednesday, the Greek government will vote to hand over its sovereignty to Europe for, sadly, absolutely nothing in return.

Our only question, one we first asked in April, is whether as part of the deal, the 112.5 tons of official Greek gold will also be handed over to Frankfurt, Berlin or Brussels. Recall back in 2012:

Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal.

Since this bailout has the most draconian terms yet, we wonder just what the fate of Greek gold will be?

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ted41776's picture

see, voting matters!

johngaltfla's picture

This might squeak through on Wednesday but I can not see this being fully implemented. Once the radicals (Communists and Golden Dawn) see the impact on the citizens, Grexit is back on the table or a military dictatorship to seize power.

I think having Germany take over the country once per century was enough for the Greeks.

EscapeKey's picture

sorry, but i don't buy this "oh the greeks were only bluffing", followed by total and complete capitulation in every regard. something must have happened in these meetings - be it the americans threatening to hand over greece to russia, revolution, or outright assasination.

also - the new finance minister? is he a complete puppet? i haven't seen anything from him - no disagreement, no argument, not even a single "we're greeks and proud" chestbeating. it's almost as if he was installed because he's a complete pushover.

El Vaquero's picture

I seriously doubt we'd agree to hand Greece over to Russia.  We took advantage of an existing political divide in Ukraine and kicked off a civil war because it pivoted towards Russia after the EU told them to pick either Russia or the EU, but not both. 

Pool Shark's picture

 

 

Time to put up "UNDER NEW [MIS]MANAGEMENT" signs on all Greek banks and public buildings...

 

J Jason Djfmam's picture

Laughter. As if it needs approval form the Greek legislature. Silly human.

Occident Mortal's picture

What Greece really needs is a military Coup d'état.

COSMOS's picture

That military coup was for if they decided to leave the EU and possibly NATO.  The way it would of been brought about would of been by a false flag muzzie major bombing attack with many casualties.  More likely on the subways, trains, or buses.

Looking at Draghi and Schauble you can see how twisted their faces and bodies look, they are creatures of the netherworld.  Why in the world are we letting bankers run our societies.  We should keep them locked up in dungeons on short leashes.

Laowei Gweilo's picture

ZHers must just be fuuuuurious that their doomsday once again never happened lol

 

you can tell how bitter the Tylers are too :P

 

i mean, it's an embarrasing sham imo too haha but you can tell a lot of people on this site really really disappointed that the plutocracy won again

boogerbently's picture

I was thinkling it would be fun if Greece got to decide which TBTF banks HERE needed to be broke up !

Slave's picture

I guess Tsipras is the Greek equivalent of Hope and Change.

Richard Chesler's picture

Tsipras=Obongo=bought by jew banksters.

These type of homosexual cocksuckers were once commonly knownn as traitors.

Be prepared...

 

Lore's picture

All the steam left Tsipras' stride the moment the negative referendum results came in.  It seems clear that he was a FRAUD, his 'OXI' bluster just role play. 

It appears now that the EU is determined to MAKE AN EXAMPLE of the Greek people, to PUNISH them for their IMPUDENCE.  Heaven help them.

new game's picture

day of reckoning is pushed out. happens all the tyme...

no biggie til tshtf, yaaaawn...

Gold...Bitches's picture

Wrong.  ZH'ers in the majority want to see Greece take control of its own fate again by getting out of the Euro.  Most people here believe in Capitalism and want to see it in action, which means that money losing banks go bankrupt - not continue to have a situation where 'heads they win and tails we lose'. 

Badsamm's picture

I've got plenty of time and cold beer to wait this out.

old naughty's picture

mine is a cup of tea, and I am brewing a cannister of...

and stock up on CASHews to go with it.

Carry on Kabuki... 

OzFan's picture

Brilliant synopsis 

Evil twisted banking bastards

What enemies of the ppl

wiser's picture

bail in has been rule out as recapitalization method... rather bail out is the prefered way with immediate funds from ESM of 10-14 billion euros in bonds

Son of Loki's picture

Probably the ONLY Merikan candidate who understands the financial numbers over there is The Don.

 

And there's probably NO ONE who understands Haircuts more then The Don!

 

 

Aloysius Snuffleupagus's picture

You're right, we've never had a candidate with as much personal experience with going BK as Trump.

Killer the Buzzard's picture

I'm sure Mr. Panos is having a caniption.

dreadnaught's picture

I think that tsipiras was told straight up that he was a dead man if he continued this 'nonsense...'

teslaberry's picture

i think you conspicuously left out one major thing; NOT A WORD OUT OF THE GREEK MILITARY.  they haven't made a squeak PUBLICLY. not yet. that will and must change.

johngaltfla's picture

What tesla said which is what I said. I don't see them surrendering their sovereignty that easily. This could get very ugly in the next 60 days.

Winston Churchill's picture

3 days to get over the shock.I expect lynch mobs in Syntagma sq. by Wednesday.

Pool Shark's picture

 

 

Greece has a military?

Who knew...

 

TBT or not TBT's picture

What does a Greek airforce spec F16 go for?

wombats's picture

Tomorow's new list of "bailout" conditions will include demands by Schaeuble, Draghi and the ECB all Greek fighters, navy ships and whatever guns their army has be turned over as part of the new "loan" collateral.  They will also demand that all military psonell be laid off since the Greeks don't need a miltary when they no longer have a soverign country to defend.  Just an unnecessary expense.

disabledvet's picture

The only reason to have money in the Bank is for security purposes.

"Once the Bank closes it's door YOU LOSE EVERYTHING."

So unless and until those Banks re-open THIS IS ALL BULLSHIT.

mkkby's picture

The new blitzkrieg is a handful of debt notes and a harmless old man, who calmly asks for payment.  The Greek army won't have enough funds for target practice or spare parts, and will lose all effectiveness within a few months.  The economy already crashed and civilians are starving.

War lost, country devastated -- without a shot fired.  Now the reparations squad can simply ask for the assets they want pledged as "collateral".  Who ever said wars would be fought with terrible weapons underestimated the power of nerdy book keepers.

disabledvet's picture

This is what actually happened in the US depression in the 1930's.

40,000 Bank failures "and zero FDIC."

Talk about a license to steal.

"And not a word from the media"...not even here at ZH.

Talk about "Pool Sharks"!

All legal in Europe too. Still...interesting that the euro sold off and US equities surged. Would imply he possibility of a "moral component" to money.

If this "Bill" comes due to over-indebted US States and Cities...look out. "Might suddenly be a cost to stealing as a a form of Governance."

Greek interest rates are in the double digits.

J Jason Djfmam's picture

Some guys with guns and a jeep is not a military.

iinthesky's picture

Yeah Greece has an army.. quite a large one actually.

COSMOS's picture

Which is also why their debt levels are unmanageable.  Had they worked on having a defense industry of their own instead of just shipping, things might of been different.

 

J Jason Djfmam's picture

O.K. so the EU wants to destroy Greece because they are afraid of their vast military might?

 

Excursionist's picture

Total budget for Hellenic Armed Forces in 2013 = ~USD$4.2 billion

Total budget for NYC police force in 2013 = USD$4.6 billion

"Where is the military in all this?" is a truly comical question. 

Boys and girls, this is what a debt workout looks like at a sovereign level.  Greeks had decades to elect competent officials in favor of competent, sustainable policies.  The Greek people failed, so now the (perceived) adults in the room are taking over.  Coming soon to a jurisdiction near you...

johngaltfla's picture

A very good military. Don't believe me, ask the Turks.

Dugald's picture

Greece has a military?

Indeed they do, and they have cute pom-poms on their boots.......scares crap out of the ememy...s'true, would I kid you?

Ward no. 6's picture

for protection from the turks

at least that is what my friend told me from out there...

they truly hate the turks...

Ofelas's picture

been on exercises with both Greeks and Turks....the latter will have them in hours

itsallgreektome's picture

sorry to burst your bubble but it ain't 70's no more.What yall are hinting at has less than a 5% of happening.

KJWqonfo7's picture

A few things to keep in mind:

  1. Military service is compulsory in Greece, even though supplies are tight every male has had some level of experience serving in the military.
  2. They have been slaves before, one of the largest events of the year is Greek Independence  Day.  I live thousands of miles away but my kids still participate in programs recounting slavery and being under the heel of the Turks.  For a Greek this is serious shit.
  3. Slavery in all but name can’t be sold to them.  Particularly from Germany who is still looked at with suspicion.  These folks still have living family members that remember friends and family being killed by the Germans.
  4. The Greek church is still a very strong force.  The church preaches sacrifice.  Greek culture is full of stories that feature and honor bravery above all.  Die for glory, country is not a foreign or weird concept.  They are raised on this shit. Go watch 300, it's not based on a comic book.
  5. Culturally the Greeks are fatalistic.  Very strong families (and no hope for their children), strong religious foundations, an underdog perspective, a history of being fucked over by the Brits, the Germans, the Americans and the Turks….  thats a recipe on how to produce a… Palestinian??
  6. They don’t have a 200 year history they have a few THOUSAND years of history.  For part of that time they were the center of the damn modern world!!
  7. They are fucking vengeful….  cross them and they will wait till the end of time for the opportunity to bring it right back to your doorstep.

 

All this to say, coup.. maybe but bloodshed for damn sure.

 

The only winners are the commies and the nazies…  for no other reason than the willingness to die for their beliefs.

 

 

 

 

Mentaliusanything's picture

Very accurate, especially #7. They smile as they cut a throat