In the face of insolvency, Greek banks are now preparing plans for a so-called “bail-in” of depositors, which would see a certain percentage of customer deposits taken by banks in order to stay in business.
The “haircut” to bank customers would be at least 30 per cent on deposits over €8,000 and is increasingly the likely scenario according to Greek banking sources.
The Greek bail-in scheme would resemble the rescue plan used in Cyprus in 2013, when customers’ funds were confiscated to shore up the banks. In that scenario customers lost all funds on uninsured deposits over €100,000.
The Greek plan would recapitalize its banks and ensure good standing with the country’s creditors, namely the European Commission, International Monetary Fund and the European Central Bank.
“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person to the influential Financial Times “This is not something that is going to happen immediately.”
In accordance with EU banking directives Greek deposits are insured up to €100,000, however the country’s insurance fund amounts to only €3bn, which is well short of the amount needed should the banks collapse.
Analysts believe that confiscating funds from small depositors is the only viable path forward for the banks as there are few deposits over €100,000 left in the banks after six months of capital flight.
Greece will vote Sunday on a proposed bailout plan in an event that will be closely watched by the other members of the European Union. A bank recapitalization would then follow.