How likely was the threat of ATM disruption during 2008 crisis?

clear thinking wrote: »

This is a good explanation of where things are at. €90 euro cash per person left, food and medicine shortages as retailers cant pay suppliers. Unless ecb is back funding on Monday a new currency is inevitable.

http://www.theguardian.com/world/2015/jul/03/greece-economy-collapse-close-food-medicine-shortage

Yeah that has nothing to do with my post.

You said that Ireland could not have received ELA without the sovereign bailout.

But that is not supported by what is happening in Greece, where the bailout is expired but ELA has not been withdrawn. And it doesn't take account of the fact that the Irish banking system was being propped up by ELA long before the Irish bailout at the sovereign level.

Although the ECB has capped its Greek ELA facility at 90 billion euro, unless Greek banks can provide further collateral. Crucially, and to its credit, the ECB has not withdrawn ELA.

I think the ECB is unlikely to withdraw it, even though it's difficult to see how they can possibly increase it, since the discount value of the Greek banks' collateral probably needs to be revised upwards after the collapse of negotiations and the referendum result.

clear thinking wrote: »

I'm saying that Ireland would have had new ELA cut off without accepting the sovereign bailout.

And I'm saying that this is incorrect. Greece hasn't accepted a bailout, it has no cash reserves, is probably back in deficit, and it still has ELA.

In reality, it is almost unthinkable that the ECB could commit such a political act as to essentially evict a sovereign Eurozone member. It would only withdraw ELA after consulting political leaders, i.e. with some sort of approval from the European Council. If it were otherwise, Greece would already have had its ELA cut off last week, or yesterday at the latest.

You'll also notice today that the ECB has increased the haircut on the ELA collateral - a defacto cut on new ELA.

I explained in the Greek thread on the main forum why that's not as big a deal as it looks.

What's happening in greece now, as you said originally about Ireland, is probably just how it would have panned out in Ireland too.

No, Ireland had about five months of reserves in the tank when it was reportedly 'bounced' into a bailout that, at the time, was quite disastrous.

Hindsight is a wonderful thing but we can today look at Greece and conclude with a high degree of probability that No, Ireland wouldn't have had its ELA withdrawn, particularly given its reserves and its 4-year plan.

clear thinking wrote: »

A Tyrant Named Miltiades! wrote:

clear thinking wrote: »

I'm saying that Ireland would have had new ELA cut off without accepting the sovereign bailout.

And I'm saying that this is incorrect. Greece hasn't accepted a bailout, it has no cash reserves, is probably back in deficit, and it still has ELA.

Cowen said on the Dail record that this was the case (yesterday). It was also common knowledge that this threat was there

Ah ... so now you've retreated from claiming that something would have happened to saying that there was "a threat".

We all know there was a threat. Prior to the expiry of the Greek programme there was a similar threat, but it has not materialised despite the fact that there is no programme.

You clearly haven't a breeze.

The government did indeed have 5 months. The banks had NIL.

All the banks were highly dependent on weekly rollover. The cash call that forced the guarantee was a measly €0.5bn bond that could not be refinanced. The guarantee allowed the ecb to accept de facto government collateral from the banks.

You're confusing the Bailout with the State's guarantee of the main Irish banks on 30 September 2008. There's a gap of about 800 days between the two events.

Before you accuse me of not having a breeze, maybe you should explain why you're conflating the 2010 bailout with the 2008 Guarantee.

Please post a link or quote.

In simple term, the ECB have reduced the greeks banks overdraft. If you rely on the overdraft and it is cut by 5-10% you'd know all about it, so it is a big deal.

I'm no more willing to do a search for my explanation than you evidently are. I'm not here to fetch previous posts. However, I will simplify it.

The additional discount applied to Greek collateral held by the ECB is not synonymous with a reduction in its overdraft, since it in no way affects the outstanding obligations of the Greek financial system to the European Central Bank--it does not increase the banks' obligation, it does not reduce their obligation, and it does not affect deposits. That's because the additional discount rate is wholly absorbed by the liquidity buffer which the Greek banks have deposited with the Central Bank of Greece.

In short, the increased discount rate is purely symbolic.

clear thinking wrote: »

The fact is, the ECB had already stopped ELA, forcing the CBI to print money.

Completely incorrect.

The Governing Council approved a new extension of liquidity assistance to the Irish financial system on November 18, 2010, a Thursday. The following Sunday, Brian Cowen announced that the State was to seek a bailout.

It is certainly true to say that the ECB threatened to withdraw ELA. It is completely incorrect to claim that they actually withdrew it in the run-up to the Bailout.

Professor Patrick Honohan has made it very clear, in his testimony before the Oireachtas Banking Inquiry, that he does not believe the ECB would have forced the CBI to withdraw ELA

https://inquiries.oireachtas.ie/banking/hearings/patrick-honohan-governor-central-bank-of-ireland/

Professor Patrick Honohan: Supposing there had been a turbulent meeting of the Government here on that Saturday or Sunday saying, “No, no we will not go in, never”, supposing there had been that and he hadn’t made the [bailout] application on Monday, would Jean-Claude Trichet have withdrawn ELA on that occasion? I don’t think so. But he—–

Deputy Michael McGrath: So it was a game of chicken.

Professor Patrick Honohan: It was a game of chicken but … not real … a game of chicken, it’s you know, you either fall over the cliff or you don’t fall over the cliff. But it would not like that, because the ECB could say, “Well, this is a very bad situation and so as a result of that we are going to apply this additional rule, this additional cost, this additional, exceptional, supplementary burden”, which they have the right and power to do. So, unfortunately for Ireland, there always is the potential in this situation for a graduated pressure, and this is something that is not often recognised. People say, “Oh, they would always have given ELA.” Probably they would, but maybe on terms that would make it very, very uncomfortable and costly.

So, there you have it. The testimony of the Governer of the CBI refutes your claim. All that existed was a threat and, according to the Governer, one that was unlikely to be executed.

You are still wrong on collateral. Here is a Very Simple table. It is a very real requirement that the facility user repays to stay within the terms of the facility, in this case a greek bank would have to repay the ECB '50':

No that's incorrect, and it's not how the discount window or bond valuation work.

Needless to say all of the figures here are illustrative only.

Now, imagine the ECB has placed an ELA cap of €890 on Greek bank liquidity. Alpha Bank of Greece (which in my example, represents all Greek banks) applies for an ELA facility from the Central Bank of Greece. Alpha forward one five-year, zero-coupon security with a face value of €1000 in the form of a Pillar bond. The CBG discounts the bond as follows:

First, the Central Bank deducts a buffer amount in anticipation of future haircuts. For argument's sake, we'll say €30. This leaves €970 on the security for discounting. The ECB applies a discount of 1.5%

We can calculate the Present Value as:

[latex]PV =\left\frac{970}{(1.015)^5}\right = 900.41[/latex]

Now Alpha Bank is just slightly above the €890 liquidity cap.

The next day, Greek bailout talks break down, and Frankfurt commands the Central Bank of Greece to apply a 2.4% discount rate on the same security, in light of the diminished value of the collateral.

[latex]PV =\left\frac{970}{(1.024)^5}\right = 861.53[/latex]

In this case, the increased discount has dimished today's value of the €1000 security below the ECB's €890 liquidity cap. But remember that €30 buffer that was deducted by the ECB? That was deducted precisely in case such a discount arose. We now add that €30 to €861.53, and we see that Alpha Bank is just inside its compliance by the skin of its teeth.

Any further discounts, and Alpha will fall into non-compliance, putting Greek depositors at risk. However, since in this case (and in real life) all that has happened is the discount has eaten into the buffer capital, well the ECB's action is just symbolic, and has no practical effect on the Bank today.