European Central Bank President Mario Draghi threw a lifeline to local lenders on Friday as the ECB decided to include bonds issued by the European Financial Stability Facility (EFSF) in the list of securities the ECB can buy in its quantitative easing program. The total value of those bonds held by Greek banks amounts to €37bn, and it’s estimated that local lenders stand to see a cash injection of up to €900m thanks to the decision, an intervention that will strengthen the capital bases of domestic lenders.
The EFSF bonds were issued during the first bank recapitalizations in 2013. EFSF bonds were used to plug the financing gap between the healthy parts of the banks absorbed by the systemic lenders and the bad parts that were put into resolution vehicles.
Local banks will have a double advantage in selling the EFSF bonds to the ECB. First, they will immediately make up to 50 percent profits on since current prices are significantly higher than the prices listed in their books. Second, banks hope that they will be able to factor in the current price of their remaining EFSF bonds that will not be sold based on the price of those that the ECB now buys back from them.
