Contagion :

FT is out reporting that the ECB has extended “secret credit lines” to Bulgaria and Romania in order to forestall asset seizures. Here’s more :

The European Central Bank has introduced secret credit lines to Bulgaria and Romania as part of a broader effort to convince foreign regulators not to pull the plug on the local subsidiaries of Greek banks.

 

News of the behind-the-scenes support for the subsidiaries comes as ECB governors decide on Thursday whether to extend a €89bn lifeline in emergency eurozone funding to Greece’s beleaguered financial sector.

 

Greece’s Piraeus, National Bank of Greece, Eurobank and Alpha Bank all have substantial assets in central and eastern Europe. If those assets were seized by local regulators, the parent banks would take an immediate capital hit, dealing a potentially terminal blow to Greece’s domestic financial system, which is already hanging by a thread as the country battles to agree a new rescue package with international creditors.

 

« The fear is that if someone goes first, and pulls the plug, everyone will follow, » said a person familiar with the situation.

 

The person said the ECB had put in place special « swap » arrangements, or bilateral credit lines, with Romania and Bulgaria to reassure them that the Greek banks there would have funding support throughout the current crisis. 

Similar swap lines, which enable foreign central banks to borrow from the ECB and relend that money locally, were used during the eurozone financial crisis, but were typically publicly announced.So essentially, the ECB is now set to lend to Bulgaria and Romania in order to ensure that those countries’ regulators do not take any actions with regard to domestic subsidiaries of Greek banks that might serve to further destabilize the Greek banking sector as Europe scrambles to keep it afloat.

As a reminder, Kathimerini reported in April that the central banks of Albania, Bulgaria, Cyprus, Romania, Serbia, Turkey and the Former Yugoslav Republic of Macedonia had « all forced the subsidiaries of Greek banks operating in those countries to bring their exposure to Greek risk (bonds, treasury bills, deposits to Greek banks, loans etc.) down to zero in order to shield themselves and minimize the danger of contagion in case the negotiations between the Greek government and the eurozone do not bear fruit. » The ECB’s fear seems to be that « quarantines » could turn to « asset seizures » which could in turn further impair the balance sheets of the parent companies and introduce yet another element of uncertainty into already indeterminate discussions around recapitalizing Greece’s ailing banks. 

And as for the idea that depositors in the Balkans aren’t at risk, we’ll close with the following excerpt from the FT article cited above :The National Bank of Romania declined to comment specifically on the new funding line. It said its Greek banking offshoots are « sound », adding that they could refuse to let shareholders withdraw deposits and could also raise liquidity from the local central bank if the situation worsened.

Source : http://www.zerohedge.com/news/2015-07-16/fearing-greek-fallout-ecb-extends-secret-credit-lines-balkans