The Greek Credit Guarantee Scheme (Greece GFC)

Journal of Financial Crises: Vol. 2 : Iss. 3, 715-738. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/37

Yale Program on Financial Stability Working Paper

24 Pages Posted: 27 Oct 2020

See all articles by Daniel Thompson

Daniel Thompson

Yale University - Yale Program on Financial Stability

Date Written: October 10, 2020

Abstract

Beginning in 2008, many Greek banks began to face liquidity strains and capital problems as a result of the global financial crisis. In October 2008, Eurozone leaders released a declaration requiring all participating nations to ensure adequate liquidity, facilitate ease of funding, and recapitalize banks. On November 7, 2008, the Greek Ministry of Economy and Finance submitted a draft law, Law 3723, to the European Commission to fulfill the above directives through the Bank of Greece (BOG). While Law 3723 consisted of three main “pillars,” the focus for this case is pillar II, the credit guarantee scheme, otherwise known as the guarantee scheme. The guarantee scheme allowed eligible banks to guarantee their newly issued senior debt for a fee that was based on the maturity of the debt and the risk profile of the issuing institution. All credit institutions (or branches of foreign banks) licensed by the BOG were eligible to participate in the scheme. Few banks participated in the scheme until the onset of the sovereign debt crisis in late 2009. Following this onset, Greek banks borrowed heavily pursuant to the guarantee scheme. All four systemically important Greek banks participated, along with other regional banks. Greece raised the guarantee scheme’s commitment limit several times, ultimately increasing it from €15 billion in 2008 to €93 billion in 2016. The number of banks participating in the scheme decreased beginning in 2013. As of October 2020, the Greek credit guarantee scheme is still operational and has a current expiration date of November 30, 2020.

Keywords: Greece, financial crisis, credit guarantee, sovereign debt, European Commission

JEL Classification: G01,G28

Suggested Citation

Thompson, Daniel, The Greek Credit Guarantee Scheme (Greece GFC) (October 10, 2020). Journal of Financial Crises: Vol. 2 : Iss. 3, 715-738. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/37, Yale Program on Financial Stability Working Paper, Available at SSRN: https://ssrn.com/abstract=3718047

Daniel Thompson (Contact Author)

Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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