While officials have begun their own versions of capital controls by raiding pension funds, confiscating local government cash, and surcharges on withdrawals (and transfer ceilings); it appears the market participants themselves have now imposed their own share of capital controls. As Bloomberg reports, international securities firms are curtailing trading with major Greek banks - pulling credit lines and restricting FX trading limits - as fear of Grexit looms.
Greek banks are increasingly being hampered from trading currencies, one of most liquid markets, as international dealers cut back credit lines and costs soar, according to people with knowledge of the trades.
International securities firms are curtailing trading with Greece’s major lenders that may expose them to the risk of a default by the nation and the possible use of capital controls to stem outflows from banks, the people said, asking not to be named because they are not authorized to speak publicly. Those threats are adding to concern that the euro would decline in the event of a default or a Greek exit from the currency region, leaving counterparties exposed to multiple risks, said the people.
A months-long impasse on Greece’s bailout talks with creditors has prompted depositors to withdraw funds from the nation’s lenders, leaving banks no choice but to rely on emergency funds for liquidity. The ECB on Wednesday raised the limit on Emergency Liquidity Assistance, people familiar with the matter said, a sign the financial system remains under strain.
“The latest sign the market is attempting to fortify itself against a Greek default is playing out in the FX market,” said Mark Williams, a former bank examiner for a Federal Reserve bank and now a lecturer at Boston University’s Questrom School of Business. “The market has increasingly become aggressive in preparing for a Greek default and in protecting itself from the potential financial impact.”
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While they’re still in a position to trade in the currency market, Greek banks are assuming additional risk as they struggle to hedge some of their positions and dealing costs have risen, said the people.
On some transactions, the bid-offer spread is as much as 50 percent higher than it was a year ago, said one person. Limited access to interbank trading has forced Greek banks to hoard an additional 5 billion euros to 6 billion euros in liquidity because they need to maintain higher buffers of cash, according to a Greek banking official.
One London-based FX sales trader said his bank continues to provide credit lines to Greek counterparties, but these are to just cover day-to-day foreign exchange needs, accommodating transactions on tenors that are no longer than a week, on a case-by-case basis.
Officials for National Bank of Greece SA, Alpha Bank AE and Piraeus Bank SA declined to comment; officials for Eurobank Ergasias SA didn’t immediately return calls
A central bank official in Athens said he didn’t have a comment.
And all this happens an hour after the ECB announced it has boosted total Greek ELA by another €2 billion to €78.9 billion. Considering total Greek household and corporate deposits were €131 billion as of the end of March, the unspoken message to Greeks is that should they push too hard, the ELA gets yanked leading to an immediate 60% haircut in Greek deposits.