(Reuters) – The European Central Bank has stopped providing liquidity to some Greek banks as they have not been successfully recapitalized, the ECB said on Wednesday, confirming news earlier reported exclusively by Reuters.
The news sent the euro lower against the dollar, fanning concerns among investors and in Greece that the country may have to leave the euro zone.
The development highlights the weak state of the banking sector in Greece, where Greeks are pulling euros out of the banks in fear that their country may exit the European single currency despite the declared determination of EU powers Germany and France to keep Athens in the monetary union.
“As recapitalization wasn’t in place, the ECB stopped monetary policy operations,” a euro zone central bank source told Reuters, declining to be identified. “They are now in the ELA of the Greek central bank.”
The ECB only conducts its refinancing operations with solvent banks. Banks which fail to meet strict ECB rules but are deemed solvent by the national central bank (NCB) concerned can nonetheless go to their NCB for emergency liquidity assistance (ELA).
The sources did not name the banks concerned.
An ECB official later added: “Pending the recapitalization of Greek banks that are severely undercapitalized as a result of the recent PSI (debt restructuring) operation, some of the Greek banks have been moved to Emergency Liquidity Assistance.”
“Once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations,” the official added. “The ECB/Eurosystem (of euro zone central banks) continues to support Greek banks.”