Bank of Greece released its balance sheet data for August. On the asset side, a very positive development is the fact that regular lending (through the Eurosystem refinancing operations, mainly using the MROs) was higher by €6.86bn, registering at a total of €30.86bn. I find this quite impressive since the Greek banks balance sheet is shrinking while the ECB did not change anything on its decision to not accept Greek government guaranteed securities during August. ‘Other claims’ decreased to €100.83bn, down €5.5bn from July. As a result it seems that a part of ELA lending was moved to regular financing, despite the fact that the Greek government used ELA financed T-Bills to pay a maturing ECB bond in August. Nevertheless, total assets posted as collateral to BoG increased from €263.86bn to €268.48bn stretching the Greek banks a bit further.In total, BoG balance sheet increased by €0.96bn to a total of €169.59bn.

On the liability side, liabilities to credit institutions dropped almost €1.5bn. Both the current accounts and the deposit facilities decreased significantly essentialy eliminating any liquidity buffer of the banking system. Deposits of General Government increased by €0.97bn. Since the Greek government claims to have registered a €0.85bn surplus in August, most of the change should be attributed to this fact (and increased lending through T-Bills), which drained liquidity from the banking system.

Liabilities to the Eurosystem are mixed. Banknotes liabilites were lower €0.71bn which is a positive result. On the other hand, Target2 liabilities were higher by €2.83bn closing at €107.88bn, most probably due to the ECB bond payment. As a result, total Eurosystem liabilities were higher by €1.52bn at €125.43bn. Based on a nominal 2012 GDP of around €200bn, Greece is now liable for more than 60% of its GDP to the Eurosystem.

Overall, although there were some positive developments regarding the scale of ELA financing, Greek external liabilities continued to increase, even if that was only due to the ECB bond maturity. Interest payments on these liabilites are based on the ECB MRO rate although, in contrast with Spain and Italy, external positions have been financed on a large part by European loans instead of the domestic banking sector. Since credit issuance is still strongly negative, the Greek banking sector is quickly losing collateral to post to BoG making the current ‘equilibrium’ a highly unstable one.