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ECB Cannot Pressure Greek Banks for a Savings Haircut

ecbThe European Central Bank cannot pressure Greek banks into freezing deposits and bonds in order to implement haircuts as part of the recapitalization process (also known as bail in), if the process is completed in 2015, noted the ECB in its response to the European Parliament.
It appears that several European Parliament members are pressuring the ECB and its supervisory branch, the SSM (Single Supervisory Mechanism), to impose a haircut on Greek banks’ deposits and particularly on their bondholders. However, Daniele Nouy, head of the SSM, made it clear that it is not possible to enforce haircuts before January 1, 2016.
The ECB has the power to suspend a Greek bank’s payments to its creditors if that institution was deemed about to be resolved or liquidated. Under an international bailout agreed last summer, Greece is set to receive up to 25 billion euros of public money to recapitalize its banks, many of which are partly state-owned and have been left with few private stakeholders to ‘bail in’ by converting their claims to equity, noted Reuters.
“The aim of such a measure is generally to temporarily suspend payments to creditors by the bank in question, in anticipation of the start of liquidation or resolution proceedings,” Nouy said. “As a consequence of the continuous monitoring, the ECB has taken actions aimed at restricting or preventing operations which would have led to a further deterioration in the liquidity position of those banks.”

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