ECB waiver to end on August 21, banks lose cheap cash

European Central Bank chief Mario Draghi on Friday signed the ECB’s expected decision to revoke its waiver for Greek bonds, ending local banks’ access to cheap funding.

The decision will come into effect on August 21, a day after the country officially completes its third bailout program.

The waiver allowed Greek debt to be accepted as collateral for regular auctions of ECB cash, despite the junk rating of the country’s bonds.

Since Greece will no longer be in an adjustment program, the criteria for accepting the waiver will no longer apply.

“From that date (August 21), the conditions for the temporary suspension of the Eurosystem’s credit quality thresholds in respect of marketable debt instruments issued or fully guaranteed by the Hellenic Republic… will no longer be fulfilled,” the ECB announced in a press release.

The decision had essentially been announced by Draghi on July 26, when he said in a press conference after an ECB Governing Council meeting that “Greek state bonds are not eligible for QE [the ECB’s bond-buying program] as that would require the waiver. The waiver for Greek bonds expires upon the end of the program.”

The bank was obliged by its own rules to end the exemption for Greece, as it did with Cyprus when it completed its own program.

Greek banks say they have taken precautions and intend to cover the loss of access to cheap ECB funding through the interbank market, the secondary bond market and securitizations.

It is estimated they will need to secure liquidity of about 4 billion euros, the cost of which will be at least 1 percent higher in the markets.

Apart from banks, the loss of cheap liquidity will also affect businesses and the Greek state, whose borrowing costs will increase, as the country’s Central Bank Governor Yannis Stournaras has said in the past.

Stournaras has spoken in favor of Greece requesting a precautionary credit line from its creditors, instead of enhanced surveillance, to maintain the waiver. However, the Greek government opted for a “clean exit.”

According to a banking source, it is estimated that lending rates would be at least 0.5-0.7 percent lower if the waiver had been kept.