Monday, 25 March 2013

Quick note on Cyprus deal

Interesting that the Cyprus deal has finally come full circle back to resolving the banks that are bust. The one interesting element is that the ELA of Laiki is to be transferred to the 'good bank'.

ELA is Emergency Loan Assistance that is backed by the ECB via the local National Central Bank - because the collateral on offer isn't good enough to access the direct ECB schemes.

Some people have struggled with why that is being transferred. My theory is to do with the assets. 

Remember that ELA is collateralised against a set of assets. The Laiki assets were assessed by the Cypriot National Central Bank as being good for the ELA.

So I suspect that the Assets and the linked ELA are being transferred to the 'good bank' to avoid the central bank having to resolve the assets and get the value for them.

Which I suspect would lead to awkward questions about whether ELA should ever have occurred in the first place.