Greece After The No Vote: Four Options For Greek Banking

With Greek voters saying No to the reforms, the countrys most vital challenge is to keep its banks operating. That is manageableprobably, but just barely.

The bank problem is not insolvency, but illiquidity. Insolvency would occur if banks were holding many bad loans. The banks assets, at true value, would not be as great as their liabilities, which are deposits and other obligations. The Greek banking problem, though, is different. There are assets on the books that are probably good, but those assets are not liquid. When a customer comes to the bank to withdraw euros, the bank cannot call in a car loan or a home loan to gain the euros needed to cash out the depositor.

If all the depositors would simply wait, the Greek banks would have no troubles. Depositors, however, are worried that some morning the government will decree that all euro bank accounts are now drachma accounts. The government would turn on the printing presses and the drachma would quickly plummet, leaving Greek bank customers all the poorer. The smart thing to do has been to withdraw euros, and Greeks have been doing this in spades.

A man holds a Greek national flag as he celebrates in front of the parliament on July 5, 2015 .FP PHOTO /IAKOVOS HATZISTAVROU (Photo credit should read IAKOVOS HATZISTAVROU/AFP/Getty Images)

Most central banks, including Americas Federal Reserve, stand ready to provide banks with the liquidity needed to handle runs by depositors. The European Central Bank has provided Emergency Liquidity Assistance to Greece for all of this year. (They work through the Bank of Greece, which is like a middle central bank, between the European Central Bank and the individual banks of Greece.) When a central bank provides this help, it requires collateral. The Bank of Greece has been posting government bonds as collateral. This is the traditional policy. The central bank is typically worried that if private loans are used as collateral, the bank will use dicey deals rather than high quality notes. Thus, government bonds are demanded as collateral because of their safety. (This would be a good time to pause for a laugh.)

Todays problem is that Greek bonds are not considered suitable collateral, so the European Central Bank is about to stop providing liquidity assistance. There are four possible resolutions to the problem.

1. Alternative Collateral. One possible solution would be for the European Central Bank to accept other collateral. However, the liquidity program constitutes a large part of Europes bargaining power, so the ECB may not want to yield.

2. Other Sources of Liquidity. A second possible solutionone which seems unlikely but should be on the tableis for the Bank of Greece to try for a liquidity deal with other institutions. They might shop around for large private banks willing to make short-term loans. Banks around the world have deposits in excess of loan demand, so this approach just might work if the collateral is good enough.

Source: http://www.forbes.com/sites/billconerly/2015/07/05/greece-after-the-no-vote-four-options-for-greek-banking/

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Voting Winds Down in Greece Amid High Anxiety

Correction appended, July 5

Greeks went to the polls Sunday to cast their votes in the first referendum there in four decades, which may decide the countrys fate as a member of the euro currency.

But fears of a lengthened closure of all banking institutionsregardless of the outcome of the voteare rife in Greece following a week of shuttered banks and uncertainty. ATMs are said to be running out of money, and already many are only able to dispense 50 notes due to the shortage of smaller tenderdespite capital controls of 60 per person permitted.

Voting ended at 7 p.m. local time, with three opinion polls indicating that the no campaign supported by the ruling government had likely prevailed by a narrow margin, the Associated Press reports.

Polls earlier had been too tight to say whether the country is poised to support or reject the bailout plan proposed by Greeces creditorsnever mind the fact that the program has already expired, contributing to a confusing day of voting.

Turnout was expected to exceed the 40% threshold for the result the be deemed legitimate. At issue is whether to accept the terms of an international bailout package that is no longer officially on the table. But the bigger backdrop is the future of the countrys status in Europe and whether Prime Minister Alexis Tsipras government will continue to have the political standing to negotiate with European creditors.

Still, a calm, sober mood was prevalent in Athens, save for when Tsipras arrived at his polling booth in his neighborhood of Kipseli, where he was greeted by about 100 rapturous supporters, all chanting Oxi, Oxi, OxiNo, no no.

President Prokopis Pavlopoulos is urging Greeks to remain united no matter the result, which will be known later Sunday night.

This day belongs to the citizen alone, Pavlopoulos said. He is called to decide, in accordance to his conscience and exclusively guided by the national best interests, on the future of our country and our people.

This is what our forebears did at crucial times and this is our obligation today. We proceed, therefore, all together, he told reporters and fellow voters while casting his ballot.

People close to the ruling Syriza party told TIME that a return to the drachma currency is inevitable if emergency liquidity assistance is not provided to Greek banks by the European Central Bank (ECB)a decision to be made by the governing council of the ECB Monday.

There is no other solution but return to national currency if the ECB doesnt give us any money for our banks, a senior party adviser said.

Other European Union officials said that, despite protestations by Finance Minister Yannis Varoufakis, banks will reopen on Tuesday.

Lines at ATM machines have remained long and arduous over the last week, with uncertainty as to what the future holds for Greece.

The precise ramifications of a vote in favor ofor againstthe referendum are also unclear. When asked by TIME what could be guaranteed in the event of a No vote, the Syriza source replied this is the one-billion-dollar question; its also about how the other side reacts.

Upon arrival at his polling station, Tsipras told supporters that while many can reject a governments will, nobody can reject the will of the people.

The charismatic leader contends that if hes given a mandate to reject the now non-existent bailout proposal, the government will renegotiate a better new one in the proceeding 48 hoursdespite the fact that after six months of negotiations, Greece and its international creditors are further apart than ever before.

Opposition leader Theodoros Fortsakis submitted a legal challenge Sunday morning to the referendum, saying it was unconstitutional. Fortsakis, said there are three specific elements making the vote unconstitutional: there was not enough time given to voters to consider the question, the question is not clear, and according to the Greek constitution, no financial questions can be submitted to referendum and it is clear that this is a question directly linked to financial matters.

Counting begins immediately after voting ends.

Correction: The original version of this story misstated the translation of the Greek word Oxi. It means no.

Source: http://time.com/3945917/greece-referendum-europe/

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