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Greek banks have turned for help to the Emergency Liquidity Assistance (ELA) of the Bank of Greece sooner than expected. According to sources of the newspaper Kathimerini, two banks have requested financing to the amount of 5 billion euro from ELA, it being a matter of days for the other local banks to resort to the emergency aid as well. According to Facebook and Twitter posts, the two banks are Alpha Bank and Eurobank.

The financial and credit institutions have turned to ELA in order to be able to cope with the reduced liquidity due to the continued contraction of deposits and the "bleeding" of banks due to the issuing of government bonds.

In general, a bank may resort to the extraordinary funding mechanism when it has a liquidity problem and has no quality guarantees to obtain such from the European Central Bank. It should be taken into account that the interest rate of ELA is 1.55%, i.e. significantly higher than the interest rate of the European Central Bank, which is 0.05%.

It is expected that the European Central Bank will consider the requests of the banks next Wednesday.

The fact that banks have resorted to the aid of ELA sooner than expected is revealing the worsening situation with liquidity.

In addition to the contraction of deposits, yesterday banks took another surprising blow, namely the free falling of the euro against the Swiss franc. According to bank estimates, yesterday’s fall had led to liquidity losses in the system amounting to 1.5-2 billion euro.

As for deposits, they decreased by 3 billion euro in December and losses are continuing in January, but as pointed out by banks, they are still able to handle the situation.

The continual  issuance of government bonds poses serious problems for banks' liquidity as well. In November 2014, the state withdrew 2.75 billion euro through bonds, in December 3.25 billion euro and in January, 2.7 billion euro, at least up to now. A significant part of the amounts previously mentioned or around 3 billion euro as shown by bank estimates were in the hands of foreign investors, who had not restored them and they are eventually bought by the Greek banks.

To recall that local banks had resorted to the help of ELA in 2011 to deal with the mass withdrawal of deposits and the widespread disparagement on the part of the state (and banks) that had made the Greek securities "unacceptable" in terms of securing liquidity from the European system. In addition, in May 2012, due to the great uncertainty caused by the elections at the time, local banks had obtained 124 billion euro from ELA and managed to cope with the unprecedented outflow of deposits. After December 2012, the dependence of Greek banks on ELA, and in general, began to decline, and in May 2014, it totally disappeared. The dependence of banks on the European funding system also decreased due to the negative record, amounting from 135 billion euro in June 2012 to 42.6 billion euro in September 2014, thus reporting a significant improvement in the economic situation in Greece and in bank liquidity. In the spring of 2014, for the first time since the outbreak of the fiscal crisis, Greek banks were able to return to the interbank market.

ELA funding is granted after the approval by the European Central Bank but actually, it is under the control of the central bank of the relevant country, i.e. the Bank of Greece in this case. The aid is granted only to sustainable banks, against the provision of guarantees, albeit with a lower quality. For example, portfolios of residential loans that the European Central Bank does not consider an acceptable guarantee for the funding may be accepted by ELA. Furthermore, ELA funding is temporary and extraordinary in nature; it is granted to deal with emergencies and cannot last longer than six months.