Bank of Greece released the September 2012 balance sheet data. These clearly point to stabilization. Lending from the Eurosystem was €30.26bn (€30.86bn in August) while ‘Other Claims’ €100.64bn (€100.83bn in August). What actually changed substantially was the collateral posted, with collateral for regular Eurosystem refinancing operations registering at €32.72bn (down from €33.04bn in August) while ‘Other off-balance sheet items) were €222.40bn, compared with €235.44bn in August, a total drop of €13.36bn to €255.12bn. Although the drop in financing was not significant, the improvement in collateral posted was, easing financing conditions for domestic credit institutions.

On the liability side, banknotes were the main source of low demand for central bank liabilities, with net liabilities (to the Eurosystem) dropping to €16.43bn, a drop of €1.12bn from the August figure of €17.55bn. Liabilities related to Target2 remained almost unchanged at €107.84bn. Other liabilities such as government deposits and credit institutions bank reserve accounts were roughly steady.

Overall, it seems that any improvement on the liability side is mostly related to the general public re-depositing excess banknotes held outside of the banking sector, rather than to inflows of liquidity from abroad. The general yield drop during September (including Greek government bonds) allowed Greek banks to lower collateral posted to BoG significantly. In my view, these developments although positive, only lower the general stress of the banking sector and have limited potential for further improvements. What is needed is a substantial drop in Target2 liabilities, driven by capital inflows something which is rather difficult right now.