Monday, July 27, 2015

Before Raiding The Bank Of Greece, Look At Their Balance Sheet!

One of the so-called Plan B's allegedly called for a take-over of the Bank of Greece so that its reserves could be used to finance the transition from Euro to Drachma. Good plan! However, it might be worthwhile to look at the BoG's balance sheet before embarking on that plan (see the table at the end of this post).

The BoG shows total assets of 176 BEUR. Of those, 127 BEUR are claims against domestic financial institutions, hardly of any value to the government. Then the BoG owns about 8 BEUR of Greek government bonds. Unlikely that they would be a useful source of transition financing. Neither would domestic securities of 6 BEUR be.

When it comes down to it, the BoG has the following assets which could be of value for transition financing:

27 BEUR - securities of foreign issuers
  4 BEUR - gold, gold receivables, SDR's and foreign bank notes

The key question is where those assets are being held. I had once suggested that the BoG should open accounts with Central Banks of friendly countries, such as Russia, in order to hold those assets there. I presume, however, that most of those assets are being held in accounts with the ECB and other national Central Banks of the Eurozone.

Picture this: Greece has just unilaterally declared default and the intention to Grexit; it has put a stop on all foreign debt service; and it has repudiated bonds held by the ECB. And now Greece wants to sell some of the above assets to create liquidity for paying governmental bills.

Message from the ECB to the BoG: "Given the unilateral actions you have taken, we have to advise you that we have blocked all balances in your accounts with the Eurosystem until clarification of the current situation".

Answer from the BoG to the ECB: "Gee, we hadn't thought of that. Sorry. Didn't mean it. Please disregard our actions".

Balance Sheet of the Bank of Greece (BoG)
Assets (outstanding amounts at end of period in EUR millions)
End of period Jun 15
Claims on MFIs 128.552
Domestic 126.671
Other euro area countries 1.357
Other countries 524
Claims on non MFIs 7.704
          Domestic 7.704
               General Government 7.297
                of which     Central Government 7.297
               Other sectors 407
          Other euro area countries 0
               General Government 0
               Other sectors 0
          Other countries 0
               General Government 0
               Other sectors 0
Securities other than shares and derivatives 32.626
          Domestic 6.018
               MFIs 420
               General Government 5.598
               of which     Central Government 5.598
               Other sectors 0
          Other euro area countries 23.559
               MFIs 3.054
               General Government 17.842
               Other sectors 2.663
          Other countries 3.049
               MFIs 152
               General Government 824
               Other sectors 2.073
Money market fund units 0
Shares and other equity excluding money market fund units 597
          Domestic 11
               MFIs 0
               Other sectors 11
          Other euro area countries 565
               MFIs 565
               Other sectors 0
          Other countries 21
               MFIs 21
               Other sectors 0
Fixed assets 806
Gold, gold receivables, SDRs and foreign banknotes 4.155
Remaining assets 1.893
Total Assets 176.333


  1. Give our money to the Russians. There's a good idea.

    1. No, not give your money to the Russians. Just move foreign assets from one account (which is under the ECB's jurisdiction) to another account (where the ECB has nothing to say).

  2. I am laughing my a off. with the message and answer....


  3. Need to differentiate between various elements. Gold is held in Athens, London, NYC and Zurich. Also probably not worth that much if sold as one lot.

  4. What has been chattered by Varoufakis looks like the planning of a criminal gang lacking any common sense.


  5. Interesting description of the situation, but I think some of the assets, like gold, will definitely be in the Bank of Greece's vault.

    The foreign securities, I do not know. They might partially be held in central security depositories, of the countries where they were purchased.

    So for example Clearstream for German bonds.

    They would not be held at the ECB, though.

    Now, as far as cutting off the inter-Euro payment system is concerned. The ECB could do that. But what then?

    The Greeks could say we have not thought of this. And give in.

    Or they could say: "Well, that means that our Greeek central bank cannot repay the 120bn liabilities it has to the ECB, even if we had wanted to."

    If German pharmaceutical suppliers now wants to be paid for drugs delivered to Greece, the payment has to go from the Bank of Greece to the Federal Reserve in New York, then to the ECB, then to the local German bank, at which the supplier has an account.

    Equally it could sell assets (gold, or securities held physically in the country) to the Russians or Chinese directly, the settlement going via their Central banks accounts with the Bank of Greece.

    Makes everything more awkward, but not impossible.

    Unless the EU could freeze all accounts worldwide for the Greek Central Bank, the Greeks will always have other options.

    But in the main, you have only concentrated on the asset side of the balance sheet of the Bank of Greece. The other side, the liability side, is of course what the ECB is worried about. (Because that is an ECB asset, the 120bn)

    If Greece repudiates all its debt, it would, of course, also repudiate the Bank of Greece liability to the ECB. The BoG could then in turn write off the assets it has from the Greek banking system, the 127bn.

    Greece would have then the most capitalized banking system in the world, having capital to assets levereage ratios of 30%.

  6. Eine Frage hinsichtlich der Möglichkeit der griechischen Zentralbank Euro Banknoten zu drucken (Ich habe gehört 10€-Scheine können dort gedruckt werden): Wer überprüft wann und wieviele Euro-Noten in Griechneland gedruckt werden?

    1. Die EZB macht das. Alles sehr streng kontrolliert.

  7. Hi,
    why do you write "allegedly" in the first statement? According to the New Satesman transcript of an interview with Varoufakis here , that was indeed his plan.

    I wouldn't be surprised if he denied that he said it but has he? He had been advocating the same suicidal strategy for Cyprus back in 2013 anyway.

    1. I thought the BoG-takeover plan had come from Lafazanis and Varoufakis never advocated such a measure. Now I know differently. Thank you!

      Incidentally, I asked a Central Banker about this plan and how the EU might have reacted. Very simple, he said. Greek Euros would have been declared counterfeit money, an arrest order for counterfeiting would have been issued and Interpol would have chased those people.