Greece’s banks limp until vote in hope for Monday ECB salvation

Greece's banking system might need a fresh cash injection just as the outcome of the nation's referendum on Sunday becomes clear, forcing a make-or-break decision upon the European Central Bank.

With Greece under capital controls and depositors barred from withdrawing more than 60 euros (S$90.5) a day from ATMs, liquidity reserves will probably only last until Monday, according to people familiar with the matter. ECB policy makers plan to consider the level of Emergency Liquidity Assistance to lenders on the same day.

The ECB capped its aid for the banking system after Greek Prime Minister Alexis Tsipras broke up negotiations with creditors and allowed the country's European Union bailout to lapse. Should voters now reject the creditors' offer in the referendum, leaving Greece with no prospect of a politically backed support program, it's not clear whether the ECB will act to prevent the lenders from imploding.

"The referendum is relevant for our analysis and decisions exclusively, because it affects the possibilities for an agreement between Greece and other member states regarding financial assistance and adjustment in the Greek economy," ECB Vice President Vitor Constancio said in Vilnius on Friday. "If there's a no result, then it will be more difficult for such an agreement to be reached. If the result will be a yes, then it's the opposite."

Authorities may need to consider further restrictions on daily cash withdrawals if they accelerate before the referendum, the people said. Spokesmen for the ECB and the Greek central bank declined to comment on the outlook for Greek lenders.

Greek Finance Minister Yanis Varoufakis said in an interview with Bloomberg on Thursday that his country "desperately" wants to stay in the euro. At the same time, he said he'll campaign against the creditors' proposal because it would entail more austerity for the nation, and would "rather cut my arm off" than sign a deal that fails to restructure Greece's debt.

The four largest Greek banks have failed and would also have defaulted, due to deposit withdrawals and the ECB's decision, had capital controls not been imposed at the start of the week, Fitch Ratings said in an e-mailed note on Thursday.

Greek lenders have been locked out of standard ECB refinancing operations since February, running up a tab of 88.6 billion euros at the domestic central bank instead. The ECB voted on June 28 not to increase the cap on ELA, prompting the closures and controls.

"In the end, the collateral that Greek banks have depends on what the Greek population decides," ECB Governing Council member Josef Bonnici, the head of Malta's central bank, said in an interview in Milan on Thursday.

"If that collateral collapses then there is no longer possibility of having ELA. The Greek nation is passing through a difficult time and no nation can survive without a banking system."

The ECB has said it stands ready to reconsider its June 28 decision, and will work closely with the Greek central bank to ensure financial stability. "If the result will be a yes, then it's the opposite it seems then easier to reach an agreement and that's the only aspect that counts for us. No other interpretations are relevant for us."

"Banks cannot reopen inside the eurozone unless there is a deal," Demetrios Efstathiou, a strategist at ICBC Standard Bank in London, said by phone. "They may well stay closed for a month. And when they do reopen, capital controls will almost certainly still be in place."

[Bloomberg]