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July 3, 2022

Greek banks plan to cut ECB reliance

Greek banks have presented plans to reduce their dependence on funding from the European Central Bank (ECB) in another signal that the country is  struggling to avoid a debt restructuring, according to Financial Times. Job  cuts, further reductions in lending, disposals of non-core assets such as  tourist hotels and the sale of profitable banking networks in south-east Europe are among measures that could help boost domestic liquidity, according to Athens bankers. The plans, which are still at a preliminary  stage, were submitted last week to the Greek central bank and the “troika” – experts from the European Commission, International Monetary Fund and  ECB. Banks have already made substantial cuts in lending to offset a steady outflow of deposits. Greek savers have withdrawn deposits amounting to  more than EUR 40 bln over the past year – equivalent to about 14 per cent  of total deposits held in Greek banks.

The withdrawals have added to the  banks’ funding problems, increasing their reliance on the ECB. The ECB has  warned that a Greek debt restructuring would have a catastrophic impact  on the country’seconomy. ECB liquidity is vital for Greece’s banks because they do not have normal access to financial markets. They have borrowed  almost EUR 90 bln using government bonds as collateral and have been  excluded from interbank markets since the country’s bail-out last May by  the European Union and the IMF.

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