Athens readies €10bn aid package for Greek banks

GREECE is readying legislation to set up a €10bn (£8.2bn) support mechanism for banks to turn to if their capital adequacy falls and they are unable to raise funds from markets to beef up their equity.

Rising bad loans, downgrades to sovereign debt holdings and a deepening recession are seen taking a toll on Greek bank earnings this year and authorities want to have a safety net ready to provide capital should there be a significant slip in banks’ equity.

The Financial Stability Fund (FSF), part of the €110bn emergency loan package debt-laden Greece secured from the IMF and its Eurozone partners to avoid default, will be gradually funded with €10bn. Debate on the FSF began yesterday with the parliament’s monetary affairs committee grilling the deputy finance minister on the fund’s structure.

The government aims to have a draft bill by the end of June. ”The purpose is not to provide liquidity support,” deputy finance minister Philippos Sachinidis told deputies. “The aim of this initiative is to deal with a collateral problem... the banking system is facing the backwash of the fiscal crisis.”