The ECB validates the Greek project funds to support banks
- on 07.12.10
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The European Central Bank (ECB) on Monday approved the project in Greece to create a fund of ten billion euros to support banks.
Athens has put in place by the end of a new Financial Stability Fund (FSF) to help its banks that are suffering from increasing bad debts, degradation of the country's sovereign rating and accentuation recession.
"The ECB welcomes the establishment of the FSF as a tool to improve the safety net of the Greek banking system during the economic downturn that could have adverse implications on the asset quality of Greek credit institutions," the ECB said on its website Internet.
This new aid funds, which will be in place for seven years, is for banks whose capital ratios are below set by the central bank but are unable to borrow on the markets.
Injections of capital FSF's will through the redemption of preferred shares that banks will issue, the idea being that with a stronger balance sheet, institutions can regain access to capital markets and reduce reliance on aid Europe.
The banks have up to five years to repay the money and redeem their preferred shares at issue price.Beyond this period, they must pay a penalty for the redemption of shares.
If schools can not redeem the preferred stock and meet the capital adequacy ratios, the shares will be converted into ordinary shares and the FSF can impose a restructuring.