The European Central Bank (ECB) on Monday moved to increase the hurdle Greek banks must clear to access emergency lending. Known as Emergency Liquidity Assistance (ELA), the $98 billion credit line is largely responsible for keeping banks solvent in the depths of the Greek debt crisis.
The ECB announced that it would maintain the current level of liquidity made available to the Greek banking system. At the same time, however, the ECB appeared to tighten the screws on loans by "adjusting" the haircut -- or discount -- on Greek collateral held to balance the loans.
In essence, this means Greece would need to raise more assets to cover its borrowing, since an increased haircut means its collateral counts for less. Though the ECB did not indicate whether the adjustment would be up or down, it is widely assumed to be an increase.
A source close to the situation, however, told Reuters that Greek banks' ordinary business operations would not be impacted by the decision, citing a "buffer between the level of ELA and the level of the collateral."
Greek banks have watched their deposits slowly wither over the past several months, bringing the Greek financial system dangerously close to insolvency. The ECB reportedly has estimated that Greek banks could last until Wednesday under their current operating conditions.
Since last week, the Greek government has imposed capital controls on its banks, limiting the amount of money that can be withdrawn to a daily maximum of 60 euros. Originally set to expire on Monday, those limits were extended until Wednesday.
This week Greek representatives will return to the negotiating table with other eurozone finance chiefs in an increasingly frantic attempt to reach an accord. An emergency eurozone summit is scheduled for Tuesday.