The European Central Bank has stopped providing liquidity to some Greek banks as they have not been successfully recapitalised, euro zone central bank sources said on Wednesday.
The ECB declined to comment on the news, which sent the euro lower against the dollar. Concern is growing in Greece and among investors that the country may have leave the euro zone.
The development highlights the weak state of the banking sector in Greece, where Greeks are pulling euros out of the banks in fear that their country may leave the European single currency despite the declared determination of EU powers Germany and France to keep Athens in the monetary union.
One person familiar with the matter said four Greek banks' capital was so depleted they were operating with negative equity capital. According to its own rules, the ECB cannot provide liquidity to banks in such a situation.
Earlier, Greece put a senior judge in charge of an emergency government on Wednesday to lead it to new elections on June 17, and bankers sought to calm public fears after the president said political chaos risked causing panic and a run on deposits.
Greeks have been withdrawing hundreds of millions of euros (dollars) from banks in recent days as the prospect of the country being forced out of the European Union’s common currency zone seems ever more real — though there has so far been no sign of a run on bank branches in Athens.
Political leaders failed to form a government following an inconclusive parliamentary election on May 6, leaving the state with its coffers almost empty and no elected cabinet in place to satisfy lenders it deserves the money needed to stay afloat.
After meeting President Karolos Papoulias, heads of various parties which won seats in parliament named the new interim leader as Panagiotis Pikrammenos, who runs the supreme administrative court.
Markets remained volatile. In the US, stocks pared gains in a volatile session on Wednesday as new questions arose about Greece’s political and economic future.
The Dow Jones industrial average was up 13.93 points, or 0.11 per cent, at 12,645.93. The Standard & Poor’s 500 Index was up 1.31 points, or 0.10 per cent, at 1,331.97. The Nasdaq Composite Index was down 0.09 points at 2,893.67.
The FTSEurofirst 300 index slipped 0.5 per cent to 993.14. MSCI’s all-country world equity index was down 0.7 per cent to 305.61. The euro was down 0.1 per cent at $1.2717. Brent crude was down 61 cents at $111.63 a barrel and US oil traded down 99 cents $92.99 a barrel.
European leaders say if Greece fails to meet promises to them, lenders will pull the plug on financing, driving Athens to bankruptcy and a swift exit from the EU single currency.
A senior executive at a large Greek bank told Reuters: “There is no bank run, no queues or panic. The situation is better than I expected. The amount of deposit withdrawals the president mentioned referred to three days, not one.”
Still, some were taking no risks. A 60-year-old textiles store owner who gave his name only as Nasos said he had transferred 10,000 euros over the phone to a bank in fellow euro zone state Cyprus on Tuesday afternoon.
