Emergency Liquidity Assistance

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As Emergency Liquidity Assistance (ELA, emergency liquidity assistance) is an instrument of the national central banks of the Eurosystem respectively.

Functionality

As ELA central banks to temporarily illiquid banks provide liquidity against collateral support if the at the institutes solvency is still guaranteed. The decision on such aid is fundamentally at the discretion of the respective national central bank, which also bears the direct risks and costs of the measure. According to Reuters, the interest rate on the emergency liquidity support is estimated at an interest rate that is around 1 to 1.5 percentage points above the ECB's prime lending rate .

Usually, credit institutions refinance themselves either through interbank trading or through central bank facilities . In doing so, they must provide collateral. If credit institutions can no longer provide collateral that is accepted by other credit institutions or the ECB, they can apply for ELA assistance from their national central bank. The national central bank can accept inferior collateral under ELA. In ELA operations, the national central bank and not the European Central Bank in the Eurosystem therefore play the role of lender of last resort .

The Governing Council can, by a two-thirds majority, decide to restrict ELA operations if these are not compatible with the objectives and tasks of the Eurosystem. If the volume of ELA operations exceeds EUR 2 billion, the ECB will set an upper limit after reviewing the situation.

ELA lending during the financial crisis from 2007

In the financial crisis from 2007 and the subsequent euro crisis , the ELA was used by banks in Belgium, Germany, Greece, Ireland and Cyprus. In Germany, Hypo Real Estate made use of ELA between October 2008 and March 2009 with a limit of up to EUR 50 billion.

In connection with the Greek sovereign debt crisis , the ECB approved multiple increases in the Greek central bank's emergency credit lines to Greek credit institutions in 2015, from 60 billion euros on February 5, 2015 to around 90 billion euros on June 23, 2015. After the Greek government and Parliament had initiated a referendum on how to proceed, the European Central Bank rejected the request for an increase of a further 6 billion euros in a special session held on Sunday, June 28, 2015. The plan is to work closely with the Greek central bank to maintain financial stability. The background to the permanent increases are the liquidity needs of Greek banks due to ongoing liquidity outflows together with the fact that the ECB no longer accepts Greek government bonds as collateral in its regular refinancing facilities .

criticism

According to Yanis Varoufakis, economics professor and later finance minister of Greece (January 2015), ELA loans “simply allow bankrupt banks that a bankrupt tax authorities cannot save, to borrow money from the Bank of Greece against pledges that are not worth much There is also discussion as to whether the Greek banks are still solvent in 2015 because a significant part of their core capital consists of deferred taxes , i.e. claims against the Greek state.

The increase in the ELA framework during the financial crisis was criticized by Bundesbank President Jens Weidmann with reference to the ban on monetary state financing, as the banks would use the money to buy Greek government bonds with short maturities ("T-bills"). He doubts that the Greek banks would still be solvent without the ELA aid. Carsten Schneider criticizes: "The ECB increases the volume of emergency loans for the Greek banks every week and thus maintains the fiction of their solvency". The economist Hans-Werner Sinn described the policy of ELA lending to Greece as a delay in bankruptcy and a license to print money. The 83 billion euros (as of June 16) withdrawn by Greek bank customers are either being hoarded as cash in Greece or transferred abroad and invested in real estate and securities there. If Grexit were to come about, according to Hans-Werner Sinn, the Greek central bank would not be able to meet the obligations to the rest of the Eurosystem resulting from the ELA aid.

The economist Martin Hellwig is skeptical about the legality of the restriction of ELA loans. He considers throttling ELA aid to be justified only in the event of a threatened Grexit . However, a Grexit is only brought about by such a throttling. "In this vicious circle, it is difficult to distinguish between a justified emergency measure and illegal extortion."

Martin Hellwig claimed, however, that the ELA loans had not been used to finance government paper purchases by the banks. On the other hand, Clemens Fuest and Hans-Werner Sinn argued that more government bonds had been bought than the amount of loans negotiated with the institutions. Martin Hellwig also said that the Greek central bank has the right to keep the money creation profits from the ELA loans. If they couldn't be repaid because of the failure of the banks, the rest of the euro area would not suffer a loss. Against this, Clemens Fuest and Hans-Werner Sinn turned with the argument that the Greek central bank had to be liable for ELA loans, but could not do so if necessary due to lack of funds.

According to Handelsblatt, the weekly ELA credit approval by the ECB is a strategic means of exerting pressure on the Greek government. Since the flight of capital continues due to the increasing uncertainties in Greece, the Greek credit institutions are dependent on liquidity assistance from the (or a) central bank.

See also

Individual evidence

  1. ↑ Procedure for granting Emergency Liquidity Assistance (ELA) ( Memento of the original from June 20, 2015 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. , bundesbank.de, accessed on June 20, 2015.  @1@ 2Template: Webachiv / IABot / www.bundesbank.de
  2. ^ Resolutions of the Governing Council (excluding interest rate decisions) March 2013 , bundesbank.de, accessed on February 10, 2015.
  3. ↑ ECB Financial Stability Review, December 2006, p. 171f (PDF; 2.7 MB)
  4. ↑ a b c d Reuters: Factbox - How ECB's Emergency Liquidity Assistance works
  5. ↑ Special edition of the monthly report of the European Central Bank “10 Years of the ECB 1998 to 2008”, p. 140 (can be downloaded from the Internet).
  6. ↑ Deutsche Bank Research April 9, 2008 "Goals and Tasks of the ECB - Price Stability vs. Lender of Last Resort ", p. 2f (PDF; 236 kB)
  7. ↑ European Central Bank, PROCEDURE FOR GIVING EMERGENCY LIQUIDITY AID
  8. ↑ a b Handelsblatt , June 28, 2015: "How the ECB can pull the plug"
  9. ↑ a b FAZnet February 5, 2015: "ECB allows Greek banks higher emergency loans"
  10. ↑ see NZZ on June 23, 2015: ECB does not drop Greek banks
  11. ↑ Ekathemerini of June 29, 2015
  12. ↑ ECB press release of June 28, 2015
  13. ↑ a b FAZnet February 12, 2015: "5 billion euros more emergency loans for Greece"
  14. ↑ Μπορεί η ελληνική κυβέρνηση να τυπώσει χρήμα μέσω του ELA; , Blog from January 18, 2015.
  15. ↑ spiegel.de
  16. ↑ Der Standard , May 15, 2015: Weidmann criticizes ELA emergency loans for Athens
  17. ^ A b wallstreet: online : Bundesbank President Weidmann: "We are not omnipotent" , also contains views from Hans-Werner Sinn.
  18. ↑ FAZ, ECB grants Greek banks even more emergency loans
  19. ↑ Spiegel-Online, ECB money for Greek banks: Berlin politicians call for an immediate stop to emergency aid
  20. ↑ Format.at : Hans-Werner Sinn: "The Grexit is the best solution for everyone"
  21. ↑ n-tv, “Greece is already broke” - Interview with Hans-Werner Sinn
  22. ↑ Martin Hellwig, The ECB and the Germans in the Greek Crisis, Handelsblatt of July 3, 2015 [1]
  23. ↑ Handelsblatt, July 10, 2015: The Risks of Emergency Loans
  24. ↑ Handelsblatt, June 17, 2015: ECB maintains emergency aid for Greek banks : “The ELA aid is approved by the ECB, which now makes weekly decisions on the overall framework for these emergency loans. In this way, she is keeping up the pressure on the Greek government to find a solution to the debt dispute with the country's lenders. "
  25. ↑ Handelsblatt, June 17, 2015: ECB maintains emergency aid for Greek banks