The ESM Greek loan and depositor bail-in

Economy View

I ‘ve been going through the detailed FAQ and legal documentation of ESM financial assistance procedures, available at the ESM website (see here and here) in order to determine how Greek banks will be recapitalized. What I have been able to determine so far is that the legal framework provides significant flexibility in managing the recapitalization exercise and can be used to justify both a (uninsured) depositor bail-in as well as capital injection through a loan to the Greek HFSF.

What is quite clear is that should the ESM be involved through the direct recapitalization instrument (DRI) a depositor bail-in is more or less certain since a contribution of 8% of total funds will be required. Bruegel does a very nice job in analyzing the various scenarios and probable scenarios. One should bear in mind though that these numbers are a moving target since the insured/uninsured deposits mix is…

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