The European Central Bank revealed the full terms of its emergency bank funding scheme on Monday, including how much it charges lender, as part of an attempt to make the often criticised liquidity lifeline more transparent. Provided to solvent European banks experiencing a temporary loss of funding during crises, Emergency Liquidity Assistance (ELA) has kept many afloat, with Greek lenders still relying on the lifeline from the euro zone's national central banks.
But critics argue it is not transparent and was used for political purposes at the height of the Greek crisis, forcing Athens to take unpopular action to stave off the collapse of banks and the ejection of the country from the currency bloc. Transparency International said this year that the ECB used the 'technical task' of ELA to exert pressure on Athens, without publicly communicating the details of its ELA decisions.
"No other central bank in the world holds that power - no decision by the US Fed could result in the ejection of a state from the Union," the anti-corruption watchdog said in March.
ELA will be provided for at least 100 basis points above the ECB's marginal lending rate, which currently stands at 0.25 percent, putting the minimum cost of the emergency loan at 125 basis point, the ECB said in the refreshed ELA guidelines. Banks on ELA must provide a funding plan within two months of receiving ELA and this needs to be updated every quarter while it receives liquidity help, the ECB said. Banks also need to report regulatory capital ratios on a monthly basis and may also need to prepare a recapitalisation plan.
If ELA, provided by each country's central bank, is given for more than six months, a detailed exit strategy must also be presented. Any extension of ELA beyond one year requires justification on a monthly basis and also the support of the rate-setting Governing Council. The ECB added that ELA is not legal if used to fund obligations to the state, as it would constitute monetary financing.
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