4 ms·

Can someone answer this simple question: why do Greek banks have no money? They are private companies and are not the ones that defaulted.

revelation 11y ago
The ECB has been keeping Greek banks alive for many months now. If you missed the news, there are long lines at ATMs and plenty of Greeks moving money anywhere but Greece - no bank can survive a bank run.
cmurf 11y ago
Read fractional-reserve banking. They only have a small fraction of deposits in the form of cash. Since the bulk of the Greek economy depends on imports, it means they are constantly importing stuff and exporting cash. And their dependency on actual physical paper money in the day to day economy has really hurt their economy more in the last two weeks than anything that's happened since the 2nd bailout; it may turn out this current period injures the Greek economy worse than any of the austerity measures.
bradleyjg 11y ago
The big danger inherent in a bank is a liquidity crisis-- their loans can't be called in all at once and their assets generally can't be sold all at once without losing a lot of value, but their liabilities in the form of demand deposits can be withdrawn at any time. So in the modern era central banks generally stand as a lender of last resort, if all the depositors want their money out at the same time then the central bank will lend individual banks cash against their assets to give to depositors. This promise, if made credibly, has the effect of preventing bank runs. The Greek banks have a different problem, a solvency crisis. They have made investments and loans that have not done well, in part because the economy as a whole has not done well. That includes lending money to the Greek government in the form of bond purchases. So it is simply the case that their liabilities (including money owned to depositors) are greater than their assets (including the risk discounted value of outstanding loans).
- peterfirefly 11y ago
  > This promise, if made credibly, has the effect of preventing bank runs. That, and the depositor's insurance, which is supposed to be for the first 100,000€ in the EU. The insurance is funded and legislated at a country level and the Greek insurance fund is simply way too small. > They have made investments and loans that have not done well, in part because the economy as a whole has not done well. Don't forget bad loans to connected people/companies.
peterfirefly 11y ago
Partly because the Greek state forced them to buy Greek treasury bills (until the ECB put a stop to it). They are worthless at the current CCC- rating. That's one of the reasons why they are most likely insolvent. They are illiquid (have no cash money) because too much cash money has been withdrawn (and the ECB stopped raising the Emergency Liquidity Assistance debt ceiling at 89G€). If they are actually insolvent, then it was most likely illegal for the ECB to continue the ELA for so long, but they (along with everybody else but the Greeks) did their utmost to keep the situation from getting worse.

revelation 11y ago

The ECB has been keeping Greek banks alive for many months now. If you missed the news, there are long lines at ATMs and plenty of Greeks moving money anywhere but Greece - no bank can survive a bank run.

cmurf 11y ago

Read fractional-reserve banking. They only have a small fraction of deposits in the form of cash. Since the bulk of the Greek economy depends on imports, it means they are constantly importing stuff and exporting cash. And their dependency on actual physical paper money in the day to day economy has really hurt their economy more in the last two weeks than anything that's happened since the 2nd bailout; it may turn out this current period injures the Greek economy worse than any of the austerity measures.

bradleyjg 11y ago

The big danger inherent in a bank is a liquidity crisis-- their loans can't be called in all at once and their assets generally can't be sold all at once without losing a lot of value, but their liabilities in the form of demand deposits can be withdrawn at any time. So in the modern era central banks generally stand as a lender of last resort, if all the depositors want their money out at the same time then the central bank will lend individual banks cash against their assets to give to depositors. This promise, if made credibly, has the effect of preventing bank runs. The Greek banks have a different problem, a solvency crisis. They have made investments and loans that have not done well, in part because the economy as a whole has not done well. That includes lending money to the Greek government in the form of bond purchases. So it is simply the case that their liabilities (including money owned to depositors) are greater than their assets (including the risk discounted value of outstanding loans).

peterfirefly 11y ago
> This promise, if made credibly, has the effect of preventing bank runs. That, and the depositor's insurance, which is supposed to be for the first 100,000€ in the EU. The insurance is funded and legislated at a country level and the Greek insurance fund is simply way too small. > They have made investments and loans that have not done well, in part because the economy as a whole has not done well. Don't forget bad loans to connected people/companies.

peterfirefly 11y ago

Partly because the Greek state forced them to buy Greek treasury bills (until the ECB put a stop to it). They are worthless at the current CCC- rating. That's one of the reasons why they are most likely insolvent. They are illiquid (have no cash money) because too much cash money has been withdrawn (and the ECB stopped raising the Emergency Liquidity Assistance debt ceiling at 89G€). If they are actually insolvent, then it was most likely illegal for the ECB to continue the ELA for so long, but they (along with everybody else but the Greeks) did their utmost to keep the situation from getting worse.