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FAQ: ECB And Greece

Q: What did the European Central Bank do yesterday that caused a sharp drop today in Greek stocks and bonds?

A: The European Central Bank said that because it was not confident that a new deal could be struck when the Greek assistance program ends at the end of the month, it would no longer accept Greek government bonds, or bonds it guaranteed, as collateral starting February 11. As long as Greece was getting assistance, the ECB was willing to waive its rule against accepting below investment grade collateral. It ended that waiver.

Q: What will the Greek banks do for funding if they cannot borrow from the ECB?

A: Greek banks can borrow from the ECB, but they cannot use the government paper as collateral. The currently also use other assets. There is a national recourse. They can borrow from the national central bank.

Q: How does that work?Read More …