The storm that was brewing for some weeks now over the stability of Greek systemic banks still overburdened by NPLs/NPEs finally erupted by a sell-off of bank shares at the (almost defunct) Athens Stock Exchange. The sell-off was initiated by short-sellers who had built positions on Greek banks and who were getting nervous due to the slow pace these banks were trying to shed problem loans from their balance sheets. (At this point one should keep in mind that, after three successive bail-outs of Greek systemic banks with the use of public funds, the management of all of them lies in the hands of SSM-selected, or at least SSM-approved officers).
The regulators - meaning the Bank of Greece and the SSM (and its local emanation, the HFSF) - were still issuing reassurances as to the capital adequacy and the inner stability of systemic Greek banks. Doing the sums and projections, investors to these same banks remained unconvinced. When Bloomberg reported on the extent of the bad-loan mountain (some 50% of their total loan portfolios) but added that the Greek Government plans to form an SPV to support the clean-up of bank balance sheets, the stock market seemed to stabilize. Still,the red ink that would result from clearing bad loans off balance sheets at steep discounts would gobble up the capital built up by these same banks. (The fact that most of the capital consists in deferred tax does little to alleviate fears).
Greek authorities have taken a reassuring stance; the regulators - BoG and the SSM - remain silent; the ESM, who was reported to be inclined to accept that funds of the cash buffer built up so as to provide a back-stop for Greek debt service (were the markets to prove too tumultuous in the next two years...) , be used to help along with a “bad bank” or even an APS/Asset Protection Scheme for Greek systemic banks issued a strong denial. All in all, this proves far more than a storm in a teacup - although not any sort of a hurricane, still.