ECB said to allow Greek banks 59.5 billion euros emergency cash

[ATHENS] The European Central Bank will allow the Greek central bank to provide as much as 59.5 billion euros (S$91.4 billion) in emergency funding for the country's lenders, a euro- area central-bank official familiar with the decision said.

The measure is needed after the ECB shut off a key avenue for Greek banks' funding on Wednesday, citing doubts that the country's newly elected government will conclude its aid program. Greek stocks and bonds fell on Thursday after the ECB's decision to end a waiver on the quality of Greek debt it accepts as collateral.

The offer highlights how ECB officials are warning Greek politicians to keep to euro-area rules while striving to avoid a crisis in the financial system. The ECB approved 50 billion euros in ELA as a replacement for its regular funding, plus an extra 9.5 billion euros, the official said, asking not to be identified because the proceedings aren't public.

An ECB spokesman declined to comment. German newspaper Die Welt reported earlier on Thursday that the ECB would allow the Greek central bank to offer about 60 billion euros in ELA.

Under the measure, a nation's central bank can provide liquidity to lenders at its own risk. The ECB will review ELA every two weeks to check whether the funds are being used in a way that doesn't interfere with monetary policy.

Should the ECB object, "the bank concerned cannot fund itself and that the bank concerned the same day or in the next couple of days would miss a payment and the counterpart will call a bankruptcy," Governing Council member Klaas Knot said at the Dutch parliament in The Hague on Thursday. "So you have a credit event," he said, while declining to comment specifically on Greece.

Greece's Finance Ministry said the ECB decision to do away with the waiver doesn't reflect any negative developments in the financial sector and that banks are "adequately capitalized and fully protected." Greek deposits are safe, and the decision to lift the dispensation for junk-rated collateral for Greek banks is something that can be reversed, Greek central-bank governor Yannis Stournaras told reporters in Athens on Thursday.

ELA is priced at an annual interest rate of 1.55 per cent compared with the current ECB refinancing rate of 0.05 per cent, he said in an interview with Kathimerini newspaper in November.

Greece might run out of funds as early as March if Prime Minister Alexis Tsipras continues to refuse bailout financing.

Finance Minister Yanis Varoufakis met with his German counterpart Wolfgang Schaeuble in Berlin on Thursday. The two men failed to narrow their differences on how to deal with Greece's debt crisis, with Schaeuble saying they "agreed to disagree."

BLOOMBERG