From City AM:
Q Why would Greek banks need support?
A The banks have lent money to the government. If the state defaults, banks will be unable to fully repay depositors. Money has been flooding out of the banks for months on fears this could happen.
They now have so little cash in reserve, that for every euro withdrawn, they must borrow an extra euro in reserves from the Bank of Greece, if allowed by the European Central Bank (ECB). If this emergency lending is removed, cash withdrawals and cross-border transactions would be limited.
So the government has to lend to bank so that banks can lend to the government? This is Emperor's New Clothes territory.
If the banks were taken out of the loop entirely, what we have is individuals lending directly to the government i.e. the government acting as its own bank, and people making deposits with it.
Sorted.
Debate Magazine
