The Hellenic Deposit Protection and Investment Guarantee Fund; HDIGF or TEKE

by George Hatjoullis

The HDIGF guarantees all bank deposits up to €100k within the Greek banking system. Deposits above €100k are uninsured and not covered. The latter can be used in order to recapitalize a bank in the event of resolution. The former are in principle exempt and covered by a fund generated from an industry-wide levy. This process is common to most banking systems. The question that is often not asked is what happens if a systemic crisis leads to widespread bank failure and the accumulated fund cannot cover the insured deposits?

If one goes to the above link and clicks on Useful Information and then on  About Resolution, one is offered two tantalising links for further information on funding. In order to access one must move to Greek (click on the Greek flag) and then use translate if necessary. Click the first option (cover deposit in translation). Right at the bottom of the explanatory section you will find (in translation):

If the above ordinary and extraordinary sources of funding are insufficient to cover any compensation payable, TEKE may conclude loans with participating financial institutions. For these loans can be guaranteed of participating credit institutions and may be provided and guaranteed by the Greek government.

TEKE is the Greek acronym for HDIGF. If the HDIGF is insufficient it can borrow from the same (failed) institutions and is ultimately guaranteed by the government. In the situation in which the Greek banking system finds itself this cannot be very reassuring even for insured depositors in Greek licensed banks.

This is not to say that Greek banks are insolvent. The fact the ECB has been willing to extend them increasing ELA up until the referendum announcement implies the ECB did not regard the banks to be insolvent. However, that it is extending ever-increasing ELA implies they are illiquid. The two are not the same and anyone that is unclear on this has many of my blogs to refer to for clarification. Of course, Greek banks have many Greek assets and the crisis could lead to non-performance and eventually insolvency of the banks themselves. The Greek government debt held by banks is an obvious degrading asset. However, capital controls can have a devastating effect on previously viable enterprises so wider degradation is likely. Non-performance will require provision and this will erode bank capital. It takes the banks closer to insolvency and may lead to resolution in some cases.

The purpose of this little piece is not to cast doubt on the solvency of Greek banks. It is to highlight that deposit insurance is very much dependent upon the integrity of the banking system and of the ability of the government to backstop the whole system. It is clear that the Greek government cannot backstop a euro based banking system. It is also clear that the Greek government is directly and indirectly contributing to a degradation of Greek bank assets. The idea that euro deposits up to €100k in Greek licensed banks are ‘insured’ seems a bit of a fiction.