covering 60%-70% of the system’s current needs.
The remainder was mainly covered from the inter-
bank, and other smaller, markets.
Thus, when the latter ceased to operate due to
the global fiscal crisis, with great costs for
Greece, domestic credit institutions did indeed
face liquidity problems, which, nonetheless, did
not prove insurmountable; and this because they
had the local deposit pool to draw from. In con-
trast, Icelandic and Irish banks whose liquidity
depended on the interbank market, collapsed as
soon as this source dried, taking with them the
economies of their countries. On the other hand,
Greek banks survived with much smaller losses.
With time, though, things are going to become
harder for all. We have already referred to one of
the nightmares for the year 2011: a decrease in
deposits. But it will not be the only one. The same
stands, for example, for the obligation to repay —
sooner or later— the low cost, albeit large, loans
taken from the European Central Bank (ECB)
during the crucial past 10-months. The Bank of
Greece (BOG) had long ago warned the heads of
Greek commercial banks that they should be
looking for alternative additional sources of liquid-
ity, instead of relying solely on the ECB, because
its help could prove temporary. And this proved,
indeed, to be the case.
Frankfurt made sure to send its own messages
since late 2010, scaling its secondary bond mar-
ket operations down to a minimum . This was just
an initial signal. Which will be soon followed by
others, since the ECB will not only discontinue the
provision of low-cost liquidity, fearful of turning
itself into a huge “bad bank” (with whatever this
implies for the Euro zone, as well as the global
economy), but will also demand the repayment of
all the loans it has extended; which were sub-
stantial. Some banks are already seeking ways of
repaying the ECB. A rather demanding task.
Which has gotten even harder, following the
recent downgrade of Greek government bonds to
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