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ECB tells Greek banks not to raise exposure to government’s debt-source

The Bank of Greece along with the ECB have already made it clear that T-bills could no longer be accepted as collateral

The European Central Bank (ECB) has asked Greek banks not to increase their holdings of Greek government debt, including Treasury bills, a banking source familiar with the matter told Reuters on Tuesday.

Greece depends on aid from the European Union, the International Monetary Fund and the ECB. But with this aid frozen, the ECB’s move increases the pressure on Athens to reach rapid agreement with its creditors on a reform package to unlock fresh cash.

“As supervisors, the ECB and the Bank of Greece are instructing the banks not to increase their exposure to Greek government debt for prudential reasons,” the source said.

With Athens still needing to refinance maturing T-bill issues and with some foreign investors balking at renewing their holdings, the ECB’s instruction means the central bank doesn’t want Greek banks to plug the government’s financing gap, thus increasing their exposure.

“This move is in line with decisions already taken (by the ECB) on the monetary policy side,” the source said.

Issuing T-bills is the only source of commercial borrowing for the leftist government of newly-elected Prime Minister Alexis Tsipras. Greek banks had been using the short-term paper as collateral for funding from the ECB until the paper ceased to be eligible for borrowing last month.

Athens has asked for the 15 billion euro ($16 billion) cap on outstanding Greek T-bills set by its creditors to be raised but the ECB has refused to do so, saying this would be tantamount to monetary financing of the Greek government.

“The ECB and the Bank of Greece have already made clear that further T-bills could not be accepted as collateral,” the source added.

Greece has to roll over T-bills of 2.4 billion euros next month.

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