Wednesday, September 14

Irish Banks Have Lost 40% Of Deposits, Why Have Greek Banks Only Lost 19%?

Irish banks have lost 40% of their deposits over the past 18 months, whereas Greek banks have lost 19%. (Without thinking I almost inserted a 'just' in front of the Greek figure, but 19% is still a significant number!)

Right now the risk is much greater for Greece than Ireland of either leaving or getting kicked out of the euro, followed by:
  1. Declaring a bank holiday
  2. Enacting capital controls
  3. Restricting Shengen and imposing limitations on travel, reducing the amount of money which can be taken out of the country per visit, or both
  4. And then devaluing the new currency by approximately 50%
Naturally, one would expect deposit withdrawals to be much higher in Greece than Ireland, but according to official statistics the opposite is the case.

From Bloomberg:
Deposits by financial institutions in Greek banks, which make up 21 percent of the total, have fallen by one-third since the beginning of 2010, while those by non-financial firms and residents dropped 9 percent, according to Bank of Greece data. 
People “are now afraid of the possibility of returning to the drachma,” said Giannoulis, referring to the Greek currency in circulation before the country adopted the euro in 2001. “Just a headline is enough to spook depositors.” 
Something doesn't smell right here. If Greek depositors were really afraid of returning to the drachma then they'd be pulling euros out en masse and stashing them under the mattress or opening bank accounts in other countries.

Greece has reported wildly inaccurate economic figures since the crisis began so one possibility here is that the 19% in withdrawals is another fraudulent Greek figure and massively understated. Recently Greece quietly activated the Emergency Liquidity Assistance (ELA) program in what was described as 'last stand' for Greek banks:
The ELA was designed under European rules to allow national central banks to provide liquidity for their own lenders when they run out of collateral of a quality that can be used to trade with the ECB. It is an obscure tool that is supposed to be temporary and one of the last resorts for indebted banks. So far it has only be used in Ireland. 
By accepting a lower level of collateral the debt in the ELA is, in theory, supposed to be the responsibility of Greece. However, since the Greek state is surviving on eurozone bailouts and Greek banks are reliant on ECB funding, in practice the loans are backed by the eurozone. The terms of lending and other details are not disclosed publicly. 
Mr Ruparel said: "Though the ELA is meant to be a temporary emergency solution, we know from Ireland, where the programme has been running for almost a year, that once banks get hooked on ELA they rarely get off it."
More about the slow motion European bank run here.


  1. Maybe the Irish have more sense than the Greeks. And where would a Greek put his Euros anyway? Italy? It is a very long train ride to Germany, and it has to go through the Balkans. Italy can be accessed over water, but it is also financially shaky. And taking bags of cash on a plane is very risky because it is likely to be confiscated by Europe's version of the TSA. Electronic transfers are possible, but the foreign account would still have to be opened in person, and electronic transfers are recorded for posterity, so they can be electronically confiscated later by the Greek Government. The best option for Greeks is to buy physical gold and hide it, but gold is so high that many people probably balk at the price.

  2. Are there not international Banks in Greece like Barclays, HSBC, Citibank etc where retail Greek depositors can convert their euro's now into a US dollar account? peter fairley

  3. They would simply open a EURO account with a non-Greek, non-French & non-UK, no-US bank.
    German, Dutch, Swiss, Lichtenstein, Austria, Denmark, Norway, Sweden or Finland are all fine.

    And they would not convert from Euro into Dollar (UKUS!) why would they risk that?
    The dollar is bound to be inflated/devalued soon. QE was done using a printing press & that is on top of their >100% of GDP debt & >10% deficit.
    Nor pounds for that matter (ca 149% of GDP debt, UK is worse than GR).

    And why would they take the risk of opening an account at a bank that has too much Greek Debt (FR banks, some UK/US) or even Greek CDS exposure (UK & US) and/or still issues from the last time (many UK & US banks still have many unplugged holes & huge open unhedged OTC derivative positions)?

  4. Well here we go: 'Irish bank officials were called in to advise Greeks on crisis'