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But doesn't this require some sort of majority in the ECB (2/3 I hear)? You can't just cut off the ELA on Cypriot banks and renege on the implicit ECB guarantee by the president's fiat alone. Unless the EU South  and the crisis countries committed suicide this is impossible. So it was an empty threat. No?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Mon Mar 18th, 2013 at 06:13:48 PM EST
[ Parent ]
I guess that comes down to who makes the decision. My google-fu was not strong enough to find it.

Found something related from Karl Wheelan (pdf of presentation)

International Money and Banking: 6. The ECB and Fed's Operational Strategies - part6.pdf

Emergency Liquidity Assistance

In some cases, banks run out of Eurosystem eligible collateral but still need to borrow from the central bank to pay off the liabilities that are flowing out of the bank.

Eurosystem central banks generally have a lender of last resort power thatpre-dates the euro. This allows them to make loans to banks even if thesebanks don't have eligible collateral.

These loans are called Emergency Liquidity Assistance(ELA) and the cental banks of the Eurosystem do not share risks with the central bank thatmakes these loans.

Article 14.4 of the ECB statute implies that the ECB Governing Council can decide by a two thirds majority to prevent any programmes (including ELA) that "interfere with the objectives and tasks" of the ECB. So while the risk stays with the central bank (and ultimately government) granting the loan,the ECB Governing Council still needs to approve these loans.

ELA has featured heavily in the Irish banking crisis (almost all the moneyAnglo/IBRC owes is ELA) and in Greece (where the Greek governmentbonds have regularly been taken off the eligible collateral list).



Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Mar 19th, 2013 at 08:05:19 AM EST
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