The PJ Tatler

Greek Depositors Fleeing Banks

It’s not quite a panic yet, but Greek depositors withdrew around $900 million on Monday and Tuesday of this week as talk of a “Grexit” – a Greek exit from the euro — heats up on the continent.

Greece’s future in the euro has been thrown into doubt by the political standoff following inconclusive May 6 elections. The president was forced to call for new elections yesterday. German Finance Minister Wolfgang Schaeuble said the next vote will be a referendum on whether Greece exits the euro, a move that would leave lenders to its government, businesses and households unsure of recouping their money.

The risk of a run on Greek banks is “a very serious problem,” Yannis Ioannides, professor of economics at Tufts University in Massachusetts, told Bloomberg Television. He said the European Central Bank needs to guarantee deposits held by the region’s lenders to guard against contagion. “That’s the only way to kill a bank run: not words but deeds.”

Banks in downtown in Athens were open as normal today with no signs of unusual activity. Deposits by businesses and households held in Greek banks stood at 165.4 billion euros in March, according to the last available data from the Bank of Greece. (TELL) In 2011, deposits declined 35.4 billion euros, or 17 percent.

As Alphaville’s Joseph Cotterill points out, the remarkable fact isn’t that so much is being withdrawn, it’s that so many Greek depositors maintain their accounts in Greek banks:

The amazing thing about the Greek banking system since 2009 is not just the 25 to 30 per cent of deposits that have left, but the 70-75 per cent which have stayed. They have stayed through two years of Greece transparently getting closer to leaving the euro and turning these deposits into drachma. We’re being serious. It’s a real challenge to prospect theory. Up to €170bn remained in banks at the end of March.

Although deposits clearly do respond to politics — the Greek President made that fairly clear this week — they have tracked the rate of Greece’s economic decline since 2009 pretty closely too. Maybe that says something about general pressure on Greek household wealth, as a driver of deposit flows. In any case, depositor flight has been what Gabriel Sterne, an economist at Exotix, has previously called a ‘bank jog’. Something to think about. What it becomes now with a month to go before fresh elections is another question.

Those predicting the imminent exit of Greece from the euro are probably wrong. The uncertainties of a Greek default and what that might to do Spanish and Italian banks who might experience a run of their own if Greece is forced back on the drachma probably means at least some kind of grace period for Greece — at least until the new elections called for June 17 resolve the messy political situation.

Then again, no one has been able to predict the course of this crisis and if the EU is determined to keep Greece in the euro, they may yet devise a means for Greece to stay.

It is, as it always has been, up to the Greeks themselves.