Greece’s securities regulator has extended a short-selling ban on bank shares to the end of July to protect investors while the recapitalisation of the country’s cash-strapped lenders is completed.

Short-selling involves investors borrowing shares to sell on the market and later buying them back at a lower price to make a profit. Greek banking stocks have been heavily shorted as investors bet that stock prices would fall further during the country’s sovereign debt crisis.

“The board took into consideration the ongoing bank recapitalisation process,» the Capital Markets Commission said in a statement, confirming an earlier Reuters story.

A short-selling ban on all stocks was introduced in August 2011 to protect investors from the fallout of the country’s debt crisis. Greece scrapped the ban on short selling non-banking stocks in January as market confidence grew after the country averted bankruptcy last year.

The regulator said that the three-month extension has been approved by the European Securities and Markets Association (ESMA).

• Cyprus’ second largest lender, Cyprus Popular Bank (Laiki), will see deposits under 100,000 euros (which are guaranteed) being put into a good bank
• Non-performing loans and uninsured deposits will be placed in a bad bank, which will be liquidated over time. This should raise 4.2 billion euros
• The good bank will be merged with the country’s largest lender, the Bank of Cyprus
• Uninsured deposits at BoC will face a haircut but none of the officials in Brussels were able to say how large it would be.
• Cypriot finance minister Sarris said that uninsured depositors, including pension funds, would receive equity in return for their savings as part of a recapitalization process; & that the Bank of Cyprus would take over the 9 billion euros of Emergency Liquidity Assistance that the ECB has provided to Laiki.
• Eurogroup president Jeroen Dijsellbloem said it was likely that the ECB would continue providing liquidity to Bank of Cyprus from Monday.
• Deposits at other banks will not be taxed and none of the 10 billion euros Cyprus is to receive from the troika will be used to recapitalize its lenders.
• It is not clear when Cypriot banks will open again.
• The first bailout instalment is due in May.
• It is not clear how much this set of measures will raise but Dijsellbloem said it the original figure of 5.8 billion euros should be disregarded.

The Reserve Bank of India (RBI) on Tuesday said firms under the scanner of investigative agencies will no longer need its permission to access external commercial borrowings (ECBs).

Ratings agency Standard & Poor’s has warned that there’s a growing danger of Cyprus defaulting on its debts.

S&P said the risk of a Cypriot sovereign default was “material and rising”, as the country prepares to vote for its next president this weekend.

With the country’s financial aid package still to be agreed, S&P cautioned investors that Cyprus could soon be downgraded from CCC+ (just three notches above default). This would happen if bailout talks fail, or if the next government cannot implement the financial reforms demanded by lenders.

S&P’s head of EMEA sovereign ratings Moritz Kraemer said in a report: >> Read More

Of all the things we expected to see in the 2007 Federal Reserve meeting transcripts released last week, Tim Geithner being accused by a fellow Fed president of leaking critical inside information to Wall Street was not one of them (although the Washington Post’s Neil Irwin got close).

In August 2007, the financial crisis began in earnest as the commercial paper market—which companies use for their short-term financing—seized up. The Fed board convened on an emergency conference call on August 10 and Chairman Ben Bernanke ended it by raising the possibility of significant changes to the discount window—a borrowing mechanism for distressed lenders who are having trouble getting financing. Such a move—or even consideration of such a move—would be huge, market-moving news.

On a subsequent emergency call on August 16, Geithner and Richmond Fed President Jeffrey Lacker had this remarkable exchange:

GEITHNER: Although (the banks) had lots of clarification about what is permitted now under current policies at the discount window, they obviously don’t have any idea that we’re contemplating a change in policy or what might be possible and what we might say or not say going forward…

MR. LACKER. Vice Chairman Geithner, did you say that they are unaware of what we’re
considering or what we might be doing with the discount rate?

VICE CHAIRMAN GEITHNER. Yes.

MR. LACKER. Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of
Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that.

CHAIRMAN BERNANKE. Okay. Thank you. Go ahead, Vice Chairman Geithner.

VICE CHAIRMAN GEITHNER. Well, I cannot speak for Ken Lewis, but I think they have sought to see whether they could understand a little more clearly the scope of their rights and our current policy with respect to the window. The only thing I’ve done is to try to help them understand—and I’m sure that’s been true across the System—what the scope of that is because these people generally don’t use the window and they don’t really understand in some sense what it’s about. >> Read More

Spain revealed Wednesday an ocean of red ink in its bailed-out Bankia group at the heart of the nation’s banking crisis.

The lender Bankia had a negative value of 4.148 billion euros ($5.5 billion) and its parent group BFA 10.444 billion euros, the state-backed Fund for Orderly Bank Restructuring, or FROB, said in a statement.

The valuations are a key piece in the recapitalisation of the banking system, weighed down by massive bad loans accumulated in a property bubble that burst in 2008.

Spain’s eurozone partners agreed in June to lend up to 100 billion euros to finance the repair work to the banks.

They set strict conditions on the rescue loan including the creation of a bad bank to absorb the industry’s stricken assets at a discount and try to sell them at a profit. >> Read More

The economist at the heart of eurozone negotiations, Euro Working Group president Thomas Wieser, has told Kathimerini that Greece will not need another major austerity package like the one it will be implementing next year unless the adjustment process is derailed by adverse domestic developments.

Wieser, who heads the group of technical experts that advise finance ministers and leaders, believes that some 9 billion euros in spending cuts and tax hikes next year will represent the last consolidation package of such size.

“Greece will not need another big austerity package because the bulk of the consolidation measures needed have already been taken,” he said. >> Read More

Bank of Greece Governor Giorgos Provopoulos expressed reserved optimism regarding the course of the country’s economy during a presentation on Wednesday of the central bank’s report on monetary policy to a parliamentary committee. However, he did warn that if there are any delays in the implementation of the program agreed between Athens and its creditors, the consequences could be particularly negative for the economy and the country.

“The loan agreement’s prior actions have been implemented, the procedures for the disbursement of the installment have started and the lightening of the country’s debt has been achieved. These developments are positive and are generating well-founded expectations that Greece’s economy could stage a rebound earlier than is currently foreseen,” Provopoulos told Parliament’s economic affairs committee.

“Nevertheless, if there is any lag or delays in the implementation of the program this time, the rebound will move further away and the consequences will be much heavier,” the BoG head warned. >> Read More

The top brass of the Reserve Bank of India ( RBI) today said the government and the regulator’s role in managing crisis is likely to be tested as “tough times” may continue for the Indian banking industry.

“It will be tested over time,” a top RBI official told bankers. RBI’s top executives met bankers at a meeting organised by the Bankers’ Club here today.

According to bankers, while RBI governorD Subbarao maintained that most Indian banks were adequately capitalised he said meeting the new Basel III capital norms may pose challenge for domestic lenders.

 There were concerns that the central government may find it difficult to capitalise public sector banks.

As per Basel III norms, Indian banks need to maintain a minimum capital adequacy ratio of 9% in addition to a capital conservation buffer, which will be in the form of common equity at 2.5% of the risk-weighted assets.

In other words, banks’ minimum capital adequacy ratio must be 11.5% as per Basel III norms. Indian banks are currently required to have a capital adequacy ratio of at least 9%. >> Read More