Greece can’t wait till Monday; panic withdrawals are hitting the banking system

Panic withdrawals of bank deposits associated with economic crisis are engulfing Greek economy like a financial tsunami. Early hours after the failure of the Luxembourg meeting indicate that people are withdrawing deposits from banks quickly.

According to the Greek central bank, depositors pulled out more than 1 billion Euros on Thursday from the country’s four large banks.  This means that the total withdrawal for the week is 3 billion Euros which is three times the average weekly withdrawal over the past two months. Greece’s debt commitment to IMF for this month is 1.6 billion Euros.

Since the nature of the crisis has percolated into the banking system, the crisis management should be deployed within hours. Banking sector crisis may happen like flash floods as people fear their loss of money. This means Greece can’t wait till the scheduled meeting of state heads on Monday.

Following the banking sector stress, in the last few hours, the European Central Bank has announced an unscheduled emergency meeting on Friday to extend emergency money to Bank of Greece, which is the central bank in Greece.

The ECB governing council may allow 3 billion Euros in emergency liquidity assistance (ELA) to Bank of Greece; the central bank of Greece.

The financial emergency mechanism now going to be deployed by the European Central Bank has no connection with the proposed bailout talk on Monday. The Monday meeting will consider further credit to Greece so that it can repay its debt to the IMF and other creditors.

It is expected that any potential banking sector crisis in Greece will be managed with the assistance of the European Central Bank since Greece is a Euro zone member. But how far the ECB can deploy money to falling Greek banks at a time when the country is on the verge of its exit from Euro zone is a perplexing question.

Earlier, the Greek central bank has cautioned fast depletion of liquidity and early appearances of banking sector stress after the failure of the bailout talks on Thursday.