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Escalating cash withdrawals in Greece lead to short-term crisis

Stephanie Johnson

Greece dodges bankruptcy as Eurozone grants bailout extension (Part 6 of 14)

(Continued from Part 5)

Greeks pull out their money

Greece’s mounting debt has been creating fear of a new crisis among Greeks (GREK). As a result, cash withdrawals in Greece have been escalating. Greek individuals and businesses have been increasingly withdrawing their money from Greek banks at a rate not seen since the peak of the country’s debt crisis in 2012.

Greeks’ fears are based on a potential default by Greece on its debt obligations and Greece’s possible exit from the Eurozone (EZU) (VGK) monetary union. In either case, they believe their money is safer with them than in the bank.

These fears could soon include popular American firms such as Accenture plc (ACN), Xerox Corporation (XRX), and The 3M Company (MMM) that have a presence in Greece.

Declining bank deposits in Greece

Banks are running short of funding as depositors and deposits are on the decline. According to reports, by January 15, 2015, around €4 billion had been taken out of Greek bank accounts for the month.

According to a JPMorgan (JPM) study, Greek bank deposit outflows remain rather contained at a pace of about €2billion per week. This rate of deposit flight could lead Greek banks to run out of money in less than two months. Piraeus Bank SA (BPIRY), the National Bank of Greece SA (NBG), and the Alpha Bank AE (ALBKY) are among Greece’s most popular banks.

To make matters worse, the European Central Bank’s ban on the acceptance of Greek bonds as collateral for loans earlier this month has forced banks to rely on more expensive emergency liquidity assistance (or ELA). ELA refers to loans that are needed to keep the bank running when they have a funding shortfall. Two of Greece’s largest banks have already applied to the Bank of Greece for ELA in order to keep themselves up and running.

With the approval of the reforms and the deal staying put, the immediate risk of Greece running out of money has been removed. The country has bought the time it needs to negotiate further to change the terms of the bailout.

Continue to Part 7

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