Greek banks: Playing against type

Economist
September 20, 2011

The idea of banks as villains is pretty well absorbed in Europe and America. In this, as much else, Greece is an outlier. It's hard to talk to the banks there and not come away feeling sorry for them.

The banks did pretty well through the financial crisis of 2007-08. Rather than relying on the state for hand-outs, if anything, the traffic has been the other way, as banks' purchases of government debt have turned into the Greek government's surest way of funding itself. According to one banker these purchases are now somewhat coerced: the government wields the threat of withdrawing deposits held by all public-sector entities if the banks do not play ball.

Whatever the motivations, the risk of sovereign default makes the banks' balance-sheets highly inflammable. They have already taken write-downs as a result of the PSI initiative to make private-sector creditors bear some of the burden of keeping Greece afloat. But the risk of further restructuring still looms.

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