After months of tough negotiations, European banking regulators have agreed to give senior bonds issued under Greece's Hercules plan a zero risk weighting, in a key development for the country's financial sector, sources told BusinessDaily.gr.
Bank of Greece governor, Yannis Stournaras, met with the heads of the country's lenders on Monday and briefed them on the positive outcome of talks on the issue.
This is seen a being a major development for the sector as it opens the path for the sale of large-sized securitizations of bad loans within the framework of the Hercules plan that will offer state guarantees on senior tranches, once conditions in the market return to normal.
The Single Supervisory Mechanism (SSM) had objections to a request from Greek banks calling for the state-backed senior bonds to carry a zero risk because the country's credit rating falls short of investment grade. The SSM had asked for cash to be put up by the state in order for the zero risk status to be accepted, in a demand that was rejected by the Greek government.
Bank of Greece officials adopted a tough stance on the issue by preparing a detailed technical note arguing why the European Central Bank should accept the senior bonds as being zero risk. The logic was that the ECB cannot accept government-guaranteed loans as being zero risk, while at the same time treat securities whose quality has been assessed and guaranteed by the state as not being zero risk.
This argument was accepted by SSM chief Andrea Enria and, subsequently, the demand to back up the bonds with cash was dropped in Frankfurt.