The European Central Bank has published a new report on the terms and conditions surrounding its provision of emergency help to eurozone banks – known as Emergency Liquidity Assistance – after criticism that its decisions were not sufficiently transparent.
Following increased scrutiny over its provision of ELA since the Greek debt crisis, the ECB has promised to take steps to clarify how it decides when a lender requires additional support.
On Monday, the ECB repeated that ELA would be provided to banks that face “liquidity problems, where, in either case, such operation is not part of the single monetary policy”.
Requests for ELA are the responsibility of the eurozone’s 19 national central banks rather than the Frankfurt-based ECB. National central banks will thus incur the costs of providing the funds and have to inform the ECB of the size, maturity, currency, and collateral against which ELA is provided.
The last major instance of ELA provision in the eurozone was during the Greek debt crisis two years ago. Greek banks were forced on to the lifeline after the ECB decided to withdraw its ordinary funding for domestic lenders following the election of the Syriza government in February 2015. ELA is a more expensive form of central bank funding for domestic banks.
In a highly critical report published earlier this year, Transparency International said the process of providing ELA during the Greek crisis meant:
Whoever calls the shots on ELA – under circumstances similar to those prevailing in Greece in 2015 – is calling the shots on the euro-area membership of the country in question.
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 ECB’s terms added that any bank in receipt of ELA needs to provide a “funding plan within two months following the first provision of ELA and for as long as the institution is receiving ELA”, in additional to monthly updates on its capital levels.
Should the amount of assistance for any bank or country exceed €2bn, the ECB’s executive board will have to judge whether or not the lifeline is interfering with its separate monetary policy operations in the eurozone.
Voting by a majority of two-thirds, the ECB’s Governing Council could decide to provide a ceiling or stop ELA should it be found to be in breach of the eurozone’s ban on monetary financing (where the central bank is directly financing government spending).