Interview with Danièle Nouy, Chair of the Supervisory Board of the European Central Bank (ECB), conducted by Eirini Chrysolora
The ECB has just announced the results of the comprehensive assessment of the four significant Greek banks. Why are the Greek banks again in need of recapitalisation, just one year after the previous injection of €8.3 billion and two years after the initial one of €28 billion? What has changed since last year’s exercise?
Well, since last year’s exercise, the results of which were disclosed in October 2014, we have witnessed a significant deterioration in the outlook for the Greek economy. First, the Greek economy, which had returned to positive growth in 2014, is contracting again. So, there is a significant deviation from the predictions regarding the economic environment that were embedded in the previous exercise. Second, the imposition of capital controls last summer by the Greek authorities has had a negative impact on the overall situation of the banks. Finally, both the decrease in deposits and the banks’ need to rely once more on emergency liquidity assistance (ELA) are also having an adverse effect on their balance sheets. In line with these adverse developments and the specific circumstances of the Greek market, selected prudential adjustments had to be made as a result of this year’s exercise in order to reflect the higher risks the banks were facing; hence the need to inject more funds into them.
What are the next important steps? Do you think there is enough time for the recapitalisation to be completed by the end of 2015?
We expect the banks to come up with their capital plans by this Friday in which they propose how they want to address the shortfalls identified by the comprehensive assessment. Once these plans are approved, banks may start the capital raising process. I do believe that there is enough time to recapitalise the banks by the end of the year in line with the requirements of Greece’s third economic adjustment programme. Now, as far as we, as supervisors, are concerned, it is important that, under the third bailout programme for Greece, there is a backstop of €25 billion that significantly exceeds the €14.4 billion shortfall identified in the exercise.
How safe are the deposits in Greek banks? Can you rule out the chance of a bail-in?
Obviously, once the banks have been recapitalised, they will be in a much better position to withstand potential adverse macroeconomic shocks. So, the recapitalisation will help restore confidence in the banking system. Moreover, in line with the implementation of the Bank Recovery and Resolution Directive (BRRD) in 2015, and as was declared in the Eurogroup statement of 14 August, a bail-in of depositors is excluded, which will support the prospects for recovery of the Greek economy. [...]