Slowly but surely, deposits are being withdrawn from Greek banks. In the last two years, a little over €60bn has been taken out, and the rate is increasing. This isn't a bank run – not yet – but it is a bank jog, at least.
Deposits still stand at well over €160bn, meaning there is a long way left to fall. But Paul Mason explains how the continued withdrawals could cause a Greek exit from the euro:
Suppose a Greek wants to send a Spaniard 1,000 euros. Let's call them Louk and Gomez:
The thing to note here is that both central banks are creating debits and credits with the entire system, not each other. They do not directly face each other. All that happens is that their accounts with the central system, TARGET2, are changed.
Now what if Bank A, in Athens, does not have enough reserves at the Bank of Greece? It borrows from the Bank of Greece, which is in turn borrowing from the ECB.
Now what if the Bank of Greece knows Bank A is in trouble because its deposits are being withdrawn? Still no problem: it can lend to Bank A, borrowing from the ECB, and take very poor collateral, by permission of the ECB, up to a certain limit.
But the sticking point comes on the issue of collateral. The Bank of Greece has permission from the ECB to lend against poor collateral up to a certain amount, set twice a week. If that amount is breached, the ECB must vote to raise it: that vote will be effectively a vote to allow massive capital flight. The moment the limit is not raised, Bank A goes bust, triggering massive capital flight if it has not already started. At that point, the Bank of Greece would have to impose capital controls, and everybody who has euros in a Greek bank account would have to keep them there and see them devalued on euro exit.
As we reported yesterday, there is a rumour that four Greek banks already have negative equity; the firehose of the ECB has been turned off for them, and they must instead borrow from the EFSF via the Bank of Greece.
But why is the jog not yet a run? Slate's Matt Yglesias has one idea. Maybe it's direct deposits:
If we eliminated deposit insurance tomorrow and I lost confidence in the American commercial banking sector I still wouldn't close out my account at PNC. Why not? Well, without the bank account I can't get paid. Nobody's handing me checks, it just goes into the bank account. And I don't write a check to pay my mortgage, Bank of America just hoovers it out of my account. Those kind of automatic setups seem to me to make a "jog" scenario in which I take a lot of funds out of the account without rushing to liquidate it more likely.