22/7/15: Another ECB Plasma Bag for Comatose Greek Banks

Another lift for Greek banks' ELA via ECB - a EUR900 million click, as previously:

Once again, the situation remains unaltered - Greek banks remain tied to ELA for funding, while capital controls cannot be lifted under small tick increases in ELA. In effect, we have a nurse replacing the empty plasma bag for a comatose patient. Nothing new, nothing dramatic...

16/7/15: Lifting Greek ELA by Eur900mln: Tiny Step, Strong Signaling

So ECB lifted Greek banks' ELA by EUR900mln to EUR89.9 billion today for the first time since June 23rd.

This suggests that Mario Draghi and the team ECB have found a way, for now, to set aside all concerns about Greek banks solvency and extend the lifeline to Greek banks until at least the end of July. The lifeline, however is not sufficient to cover deposits withdrawals that would occur if the Greek government were to lift capital controls.

Going forward - two-three weeks time, the ECB will have to deal with two issues at the same time:

• Increase ELA once again and do it either in small drip format (as today) - sustaining capital controls and possibly even extending these to cover corporate sector - or increase ELA by EUR5-7 billion to cover built up of demand for deposits monetisation and corporates' operational pressures; and
• Addressing the severity of ECB haircuts on Greek banks' collateral eligible for ELA. Here, the problem is severe: even before the mess with capital controls, Greek banks held poor cushion of eligible collateral. With capital controls, this cushion is even weaker as many households and companies have stopped funding their loans. The ECB will have to lower haircuts on collateral and/or broaden collateral pool - both moves would be hard to pass as it is now publicly apparent to all that Greek banks health is deteriorating rapidly. 

So today's moves is a small positive of largely symbolic size. Much work is yet to be done...

15/6/15: Next Step: Cyprus.

Next stop for Greece:
http://www.ecb.europa.eu/press/pr/date/2013/html/pr130321.en.html
... or in simple terms: Cyprus.

Anyone surprised by Draghi not mentioning any of this anywhere today, shouldn't be. Il Capo does not do the work of Soldati... But Dr. Draghi did say he thinks ELA underwrites solvent banks... presumably in an insolvent state... which, of course, makes banks insolvent too.

How? In two steps: Step 1 - banks hold 'insolvent' state bonds. As long as they do, the state remains 'solvent' but once the state becomes insolvent, banks go too. Step 2 - Greek banks have tax offsets. Once the state goes, so do the offsets and banks.

Source: Raoul Ruparel ‏@RaoulRuparel