The ECB's ELA loans: everybody's printing press

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http://www.dw.com/en/the-ecbs-ela-loans-everybodys-printing-press/a-18546015

How was Greek Prime Minister Alexis Tsipras able to keep his country’s banks liquid even as the standoff over Greek debt wore on? DW takes a look at the ECB loans known as Emergency Liquidity Assistance.

The ECB's ELA loans: everybody's printing press
Zhang Danhong
28.06.2015

Mid-February, the European Central Bank shut off the tap for the Greek banking sector. It did so by explaining that Greek bonds would no longer be accepted as collateral for loans. The action was in fact a reaction to the Syriza government avoiding prior arrangements that Athens had come to with its lenders.

The ECB, however, has not left Greece's banks completely out to dry. The central bank has provided ample emergency assistance loans since February. At first it was increasing the scope of the so-called Emergency Liquidity Assistance (ELA) loans on a weekly basis, recently it has been doing so almost daily. Thus far, some 90 billion euros in loans have flowed.

These ELA loans represent a line of credit for countries in the euro system. With it, the ECB allows national central banks to throw on the printing press to keep banks in their own countries liquid.

A high price

ELA loans come at a higher price than regular loans. Interest for these loans for Greek banks is currently at 1.55 percent, according to a Commerzbank analysis. Banks that borrow directly from the ECB have to pay a mere 0.05 percent interest, a pittance in comparison.