Emergency liquidity assistance (ELA)

At the ECB, the possibility for fundamentally solvent but temporarily illiquid institutions to be provided with cash by the domestic central bank against the deposit of corresponding valuable collateral. In the course of the subprime crisis, which developed into a financial crisis, such liquidity assistance was granted in Germany in 2009 for the Hypo Real Estate rescue in order to mitigate or prevent contagion effects on other banks. – At the beginning of 2011, the ECB had made a good EUR 500 billion available to institutions in the euro area. Of this, more than EUR 300 billion went to banks in Portugal, Ireland, Greece and Spain. This means that less than a quarter of European banks absorbed almost two-thirds of the liquidity provided by the ECB. Europe’s banking landscape was divided into two classes at this point: On the one side are the institutions that have emerged more or less well from the financial crisis that followed the subprime crisis. On the other side are those that will be on the drip of the central bank for the foreseeable future. – Emergency liquidity assistance has effectively become long-term support for banks, especially since since February 2012 the individual central banks of the EMU have also been able to lend against lower collateral – i.e. below the level of the collateral framework set by the ECB. All that is required is a duty to inform the ECB. Many observers see the transformation (changing the function) of emergency liquidity assistance into a permanent facility as a sign of a breakup of the EMU and an invitation for national central banks to fire up the money printing machine. – In the case of Greece, the ECB financed the state through the ELA, even though Greece had not complied with the conditions of an aid program set by the Troika. – See banking crisis, banking collapse, bailout, Bradford nationalization, deposit insurance, money market operations, money lender of last resort, Greek crisis, liquidity pool, moral hazard, Northern Rock debacle, Eurosystem credit assessment framework, risk, subjective, blowback effect, penalty interest rate, Sifi oligopoly, too big to fail principle, overflow system, redistribution, central bank-induced, asset levy, Cyprus crisis. – Cf. ECB Monthly Bulletin of February 2012, p. 33 f. (expansion of the list of eligible collateral pushed through in the Governing Council), ECB Monthly Bulletin of July 2013, p: 77 ff. (detailed account of the development of the collateral framework and collateral; many overviews).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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