Study on the financial sector in Greece during the economic adjustment programmes : 2010-2018 : final report.
Date: 2020-12-27
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: Greece, banking system, economic consequence, economic planning, economic reform, financial market, financial risk, financial solvency, monetary crisis, report, sample survey, structural adjustment

Study on the financial sector 
in Greece during the 
economic adjustment 
programmes: 2010-2018 
Final Report 

Written by Oskar Andruszkiewicz and 
Juliette Mathis (ICF), Charu Wilkinson 
(ICF Associate), Michalis Vassiliadis, 
Peppas Konstantinos and George 
Gatopoulos (IOBE) 

June 2020 

 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Directorate-General for Economic and Financial Affairs 

Directorate L — Treasury and financial operations 

Unit L.2 — Treasury and Asset Management 

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E-mail:  Ludmila.Nola@ec.europa.eu 

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Luxembourg: Publications Office of the European Union, 2020. 

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ISBN 978-92-76-22204-0 

doi: 10.2765/403158 

KC-02-20-737-EN-N 

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Study on "The financial sector in Greece during the economic adjustment 
programmes: 2010-2018 

Table of Contents 

List of abbreviations ........................................................................................... 1 
Abstract ........................................................................................................... 4 
Executive summary ........................................................................................... 5 
Introduction ...............................................................................................12 
1 

1.1 
1.2 

Context, scope and purpose of the study .................................................12 
Structure of this Report .........................................................................14 

2  Greek banking sector prior to and at the outset of the crisis .............................15 
3  Main findings ..............................................................................................20 

Diagnosis of the financial sector at the outset of the crisis .........................20 
3.1 
Liquidity of Greek banks and measures to maintain it ...............................28 
3.2 
Solvency of the Greek financial sector .....................................................36 
3.3 
3.4 
Non-Performing Loans (NPLs) ................................................................72 
3.5  Governance aspects of the Greek banking sector ......................................85 

4  Conclusions .............................................................................................. 108 

4.1 
4.2 
4.3 
4.4 
4.5 
4.6 
4.7 
4.8 

Study question 1 ................................................................................ 109 
Study question 2 ................................................................................ 110 
Study question 3a .............................................................................. 110 
Study question 3b .............................................................................. 112 
Study question 4a .............................................................................. 113 
Study question 4b .............................................................................. 113 
Study question 5a .............................................................................. 113 
Study question Q5b ............................................................................ 114 

Annex 1  Methodological approach .................................................................. 116 
List of completed interviews ............................................................. 123 
Annex 2 
Annex 3 
List of reviewed documentation ......................................................... 125 
Annex 4  Summary of desk review on diagnostic work conducted by the BoG, EC, 
ECB and the IMF ............................................................................................. 131 

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Study on "The financial sector in Greece during the economic adjustment programmes: 
2010-2018 

List of abbreviations 

AMC 

AQR 

BIS 

BoD 

BoG 

BoP 

bps 

Asset Management Company 

Asset Quality Review 

Bank of International Settlement 

Board of Directors 

Bank of Greece 

Balance of Payments 

Basis Points 

BRRD 

Bank Recovery and Resolution Directive 

CAC 

CAR 

Collective Action Clause 

Capital Adequacy Ratio 

CEPS 

Centre for European Policy Studies 

CET 

CFM 

CPI 

Common Equity Tier  

Capital Flow Management 

Consumer Price Index 

DG ECFIN  Directorate-General for Economic and Financial Affairs 

DG FISMA  Directorate-General for Financial Stability, Financial Services and Capital 

DSA 

EA 

EAP 

EBA 

Markets Union 

Debt Sustainability Analysis 

Euro Area 

Economic Adjustment Programme 

European Banking Authority 

EBRD 

European Bank for Reconstruction and Development 

EC 

ECA 

ECB 

EEF 

EFF 

EFSF 

EFSM 

EIB 

EIU 

ELA 

European Commission 

European Court of Auditors 

European Central Bank 

European Economic Forecast 

Extended Fund Facility 

European Financial Stability Facility 

European Financial Stabilisation Mechanism 

European Investment Bank 

Economic Intelligence Unit 

Emergency Liquidity Assistance 

ELSTAT 

Hellenic Statistical Authority 

Economic Policy Uncertainty index 

European Stability Mechanism 

European Union 

Economic Uncertainty Index 

EPU 

ESM 

EU 

EUI 

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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EUR 

EZ 

FBB 

FSR 

FT 

Euro Area Currency 

Eurozone 

First Business Bank 

Financial Stability Review 

Financial Times 

FTSE 

Financial Times Stock Exchange 

GGB 

GLF 

GDP 

HAIC 

HBA 

Greek Government Bond 

Greek Loan Facility 

Gross Domestic Product 

Hellenic Association of Insurance Companies 

Hellenic Bank Association 

HDIGF 

Hellenic Deposit and Investment Guarantee Fund 

HFSF 

HKKS 

IEO 

IIF 

IMF 

Hellenic Financial Stability Fund 

Hardouvelis, Karalas, Karanastasis and Samartzis 

Independent Evaluation Office 

International Institute of Finance 

International Monetary Fund 

LAMC 

Loan Asset Management Company 

MFS 

MoU 

MacroFinancial Stability 

Memorandum of Understanding 

MPIR 

Monetary Policy Interim Report 

MPR 

NBG 

NPE 

NPL 

Monetary Policy Report 

National Bank of Greece 

Non-Performing Exposure 

Non-Performing Loan 

OECD 

Organisation for Economic Co-operation and Development 

OMO 

PIIE 

Open Market Operation 

Peterson Institute for International Economics 

PIICS 

Portugal, Ireland, Italy, Cyprus, Spain 

PSI 

Private Sector Involvement 

QREA 

Quarterly Report on the Euro-Area 

Relationship Framework Agreement 

Return on Equity 

Stand By Agreement 

Statistical Data Warehouse 

South Eastern European 

Small or Medium-sized Enterprise 

RFA 

RoE 

SBA 

SDW 

SEE 

SME 

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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SMP 

SSI 

SSM 

TA 

USD 

WB 

Securities Markets Programme 

Systemic Support Indicator 

Single Supervisory Mechanism 

Technical Assistance 

United States Dollar 

World Bank 

WEO 

World Economic Outlook 

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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Abstract 

The  three  Economic  Adjustment  Programmes  (EAPs)  implemented  in  Greece  over  the 
period 2010-2018 aimed at stabilising the financial sector on the short-term and restore 
the  growth  prospects  and  the  country’s  capacity  to  finance  itself  fully  on  the  financial 
markets (fiscal sustainability) in the medium and long run. During this time, the financial 
sector in the country saw a major restructuring including three rounds of recapitalisations 
and  resolutions  for  which  the  total  of  EUR  75  billion  were  assigned  and  extensive 
conditionality designed.    

This study provides an independent assessment of number of aspects addressed under the 
three programs including the risk diagnostics of the Greek banking sector that underpinned 
the design of the first program, issues surrounding liquidity of the Greek banks, the design 
and implication of the Private Sector Involvement (PSI) for the Greek financial sector and 
subsequent  recapitalisations  and  resolutions  of  Greek  banks,  as  well  as  reasons  for 
persistently high NPLs  and  the reforms of the  corporate governance  of the  Greek banks 
brought by the programs. The study draws on evidence gathered through a mixed-methods 
approach, comprising both quantitative and qualitative research techniques. 

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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Executive summary 

European Adjustment Programs (EAPs) and the financial sector in 
Greece  

Three  Economic  Adjustment  Programmes  (EAPs)  were  implemented  in  Greece  over  the 
period 2010-2018. The three programmes consisted of providing loans to Greece in light 
of  the  financial  difficulties  it  was  facing,  conditionally  on  the  implementation  of  policy 
measures. The basic underlying implicit ideas behind the programmes were: (i) to avoid 
the default of a Euro-Area member in light of the perceived contagion risks to other euro-
area countries and systemic risks to the financial system; and (ii) to temporarily finance 
budgetary deficits, in the absence of access to capital markets, with strict limits that decline 
over time, and until a return to a healthier public finance situation could be achieved. 

Over the period from May 2010 to August 2018, a total of EUR 288.7 billion were disbursed 
to Greece at favourable conditions approximately 90 per cent of  which coming from the 
Euro-Area  under  various  pool  of  funds.  Different  pools  of  funds  had  to  be  used  since  in 
2009-early 2010, there was no EU-level facility which would allow to provide support to 
members  of  the  Euro  Area.  Therefore,  following  the  Greek  Loan  Facility,  specific 
macrofinancial stability (MFS) instruments for euro area countries were set up, as interim 
arrangements  (European  Financial  Stability  Facility,  European  Financial  Stabilisation 
Mechanism),  before  the  permanent  European  Stability  Mechanism  (ESM)  could  be 
established. All, except the European Financial Stabilisation Mechanism (EFSM), have been 
created outside of the EU budget 

All programmes had the same objectives of helping to correct unsustainable imbalances 
and stabilise the financial sector on the short-term and restore the growth prospects and 
the country’s capacity to finance itself fully on the financial markets (fiscal sustainability) 
in the medium and long run.  

To achieve these objectives, a set of conditions were agreed primarily with the European 
Commission (EC) in the programme’s respective Memoranda of Understanding on Specific 
Economic  Policy  Conditionality  (MoU)  and  served  as  benchmarks  for  assessing  policy 
performance  as  part  of  the  quarterly  reviews.  In  that  context,  financial  sector  reforms 
under  the  first  EAP  focused  largely  on  ensuring  sufficient  liquidity.  Yet,  given  the 
deterioration  of  the  situation,  including  looming  solvency  risks,  financial  sector  reforms 
gained more prominence under subsequent two EAPs. Larger financial envelopes assigned 
to financial sector specifically were deployed subsequently reaching the total of EUR 75 bln 
across three EAPs, and more extensive conditionality was designed.    

Overall, the Greek financial sector saw dramatic changes  over the period 2010-2018.  It 
was  a  subject  of,  inter  alia,  three  rounds  of  banks’  recapitalisations  and  resolutions,  all 
involving  over  EUR  45  bln  of  public  funding  deployed  in  course  of  the  three  EAPs.  The 
number  of  Greek  banks  shrank  from  over  30  in  2010  to  15  in  2018,  and  those  that 
remained on the market had undergone a major restructuring.    

Study scope, objectives and methodology 

The study focused on analysing the characteristics and developments of the financial sector 
in  Greece  over  the  period  2010-2018  in  the  light  of  the  objectives  and  the  policies 
implemented  during  this  period.  It  covered  all  three  EAPs  and  all  aspects  of  the 
programmes with relevance for the financial sector reforms in Greece during this period, 
in both design and implementation. 

More specifically, the study addressed the following questions: 

  Question 1: To what extent did the programme analyse appropriately the banking 
sector  risks  existing  before  the  1st  programme  (including  those  related  to  banks’ 
governance,  business  model,  ownership  structure,  credit,  provisioning  and 
investment policies, asset and liability structure), with the  information at hand at 
the time and given the international financial markets context?  

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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  Question  2:  What  were  the  main  reasons  behind  the  acute  liquidity  needs  of  the 
Greek  banking  sector  throughout  the  entire  three  Programmes?  How  successful 
were  the  measures  taken  in  maintaining  liquidity,  restoring  confidence  (investor, 
depositor, interbank), and protecting financial stability?  

  Question 3a: What were the main reasons for the significant capital losses of Greek 
banks? What was the impact of the Private Sector Involvement (PSI) on the Greek 
financial sector and banks in particular?  

  Question  3b:  How  effective  were  the  measures  taken  under  the  programme  to 
stabilise the sector and the individual banks (e.g. recapitalisations, bank resolutions) 
and restore adequate capitalisation?  

  Question 4a: What were the most important reasons behind the large and persistent 

increase in NPLs in Greece?  

  Question 4b: To what extent were programme policies adequate in limiting the initial 
build-up of the NPL portfolio, given the underlying conditions? Subsequently, were 
programme policies adequate in facilitating effective NPL resolution and reduction?  

  Study question 5a: To what extent were programme policies adequate to improve 

the governance of Greek banks?  

  Study question 5b: To what extent has the Hellenic Financial Stability Fund (HFSF) 

played an effective role in this regard? 

The study was based on a mixed methods approach comprising the following tasks: 

  Semi-structured  interviews:  20  semi-structure  interviews  of  which  most  with  the 
stakeholders  representing  Greek  authorities,  the  EC,  ESM  and  IMF  staff  were 
conducted as part of the study. Representatives of the ECB did not contribute to the 
study. Besides, a number of written follow-ups with interviewed stakeholders further 
substantiated the evidence base from the interviews;    

  Documentation review: An extensive documentation review incorporating, inter alia, 
publicly  available  reports  from  the  BoG,  EC,  ECB,  EBA  as  well  as  academic 
publications, economic/ financial press and private market reports was conducted. 
In addition, some non-publicly available documents to which access was granted by 
the Steering Group were also reviewed by the study team;  

  Data review and analysis: The study team compiled and reviewed key financial and 
macroeconomic  data  and  indicators  from  international  and  national  sources 
including, inter alia, IMF WEO April 2019, World Bank Open Data, EBA, ECB, BoG, 
ESTAT,  stock  market  index  in  Athens,  and  the  data  from  the  Greek  Ministry  of 
Finance; 

  Delphi survey: Survey responses provided by 30 independent experts in economics 
and  finance  representing  financial  sector  professionals,  think-tanks  and  academia 
with  an  extensive  prior  knowledge  of  EAPs  based  on  their  experience  with  the 
country context and economic and financial situation;  

  Critical reviews of the report: Prior to the publication, the report was subject of an 
in-depth reviews involving also comprehensive feedbacks provided by the EC and 
IMF staff.  

The  limitations  of  the  study  are  discussed  in  the  Annex  1.  Overall,  given  number  of 
mitigation  measures  undertaken,  the  robustness  and  reliability  of  the  analysis,  findings 
and conclusions are strong.  

Study findings and conclusions 

Diagnostics of the financial sector at the outset of the crisis 

The Greek banking sector was generally considered to have sound fundamentals 
and,  indeed,  the  crisis  in  Greece  did  not  originate  from  the  banking  sector. 

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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Although  not  immune  to  the  initial  blow  from  the  global  financial  crisis,  and  with  some 
underlying  vulnerabilities,  Greek  banks  had  relatively  simple  balance  sheet  structures, 
limited exposure to toxic financial assets, and some of the key metrics - such as profitability 
and capital adequacy – were not far from those of their stronger EU peers. 

Surveillance  of  the financial  sector  was  less  intensive  at  the time.  This  was  also 
true  of  other  Member  States,  however,  and  the  need  for  more  developed  surveillance 
frameworks and activities only became evident as a result of the crisis.    

Multiple sources of information fed into the diagnostics that underpinned the first 
EAP and these were gathered in a timely manner. In 2009, the situation in the Greek 
financial sector was already receiving increased attention from the institutions, including 
the BoG and IMF staff stress tests conducted in H1 2009. In addition, off-site diagnostics 
were subsequently complemented by technical missions of the European Commission, ECB 
and  IMF  staff  between  January  2010  –  April  2010.  The  three  institutions  also  took 
appropriate and timely measures to strengthen the supervisory capacity of the BoG and to 
increase the scope, frequency and granularity of the supervisory data.  

Coverage  of  risk  in  selected  surveillance  documents  published  by  the  BoG, 
European  Commission  and  the  ECB  prior  to  and  during  the  initial  stages  of  the 
crisis did not appear to be comprehensive enough. The study did not cover the BoG 
and  three  institutions’  diagnostics  work,  whose  results  were  not  publicly  available.  The 
review  of  the  publicly  available  surveillance  work  of  the  BoG,  EC  and  ECB  showed  that 
some risks received little or no coverage, and there was evidence that the gravity of the 
situation in the Greek financial sector was underestimated. Of the three institutions, the 
IMF surveillance publications were the most comprehensive.  

In retrospect, the risk stemming from the sovereign-banking feedback loop was 
one of the most critical factors affecting the liquidity and solvency of Greek banks. 
The  recognition  of  the  full  magnitude  of  this  risk  was  delayed,  partly  due  to  an 
underestimation of the impact of fiscal consolidation measures on the whole economy that 
then  trickled  down  to  the  banking  system.  More  generally,  while  the  high  exposure  to 
Greek Government Bonds (GGBs) was broadly acknowledged as a vulnerability factor ex 
post, the discussions at the time focused less on the reasons behind such higher exposure.  

Overall, the study did not find any major constraints to the analysis of the risks 
in the Greek banking sector prior to the first EAP, notwithstanding the  issue of 
macroeconomic projections. The scope, frequency of the data provision and reliability 
of the available financial statistics underpinning diagnostics and provided by the BoG to 
the three institutions were found to be adequate. 

Liquidity of Greek banks and measures to maintain it 

When the Greek sovereign crisis erupted in 2009, Greek banks faced increasing 
liquidity pressures due to: 

  Downgrading, which led initially to limited access (at an increased cost of funding) 
and later to a complete shut-down of wholesale market funding. Downgrades also 
affected both the value and the eligibility status of collateral for participation in the 
Eurosystem’s monetary policy operations; 

  Uncertainty  and  recurring  Grexit  fears,  which  led  to  mass  deposit  withdrawals. 
Banks lost  over  one-third of their deposits between January 2010 and July 2012, 
and  almost  half  of  their  deposits  between  January  2010  and  July  2015  (EUR  117 
bln); 

  Increasing loan impairment due to the deepening recession, reducing the available 

eligible collateral for refinancing operations. 

Throughout  the  crisis  Greek  banks  were  heavily  reliant  on  the  Eurosystem  to 
meet  their  liquidity  needs.  ECB’s  Extraordinary  measures  to  provide  liquidity  via  the 
Eurosystem  included:  (i)  suspension  of  the  link  between  sovereign  credit  ratings  and 

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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eligibility of collateral for refinancing operations; intervention directly in the government 
bond market under the securities markets program (SMP); (iii) acceptance of uncovered 
bank bonds guaranteed by the government as eligible collateral for refinancing operations. 
However,  overtime  as  wholesale  funding  markets  remained  closed  and  banks’  access  to 
Eurosystem refinancing suffered due to a lack  of eligible collateral, Greek banks  started 
relying  increasingly  on  emergency  liquidity  assistance  (ELA)  from  the  Bank  of  Greece 
(BoG).  ELA  funding  was  a  major  source  of  bank  liquidity  in  2012–13  and  in  2015-mid- 
2018, when it was also combined with capital controls (in June 2015 Grexit fears triggered 
a bank run. As banks came close to running out of funds, the government was forced to 
impose  capital  controls).  In  this  context,  access  to  ELA  and  the  introduction  of  capital 
controls in 2015 were critical in preventing a collapse of the Greek banking system. There 
however, remains a question mark whether the capital controls were justified over a four 
year period, particularly as ‘Grexit’ fears waned. On the other hand, the still fragile liquidity 
profile of Greek banks prior to 2019 suggested that there would have been a degree of risk 
for the authorities to lift the capital controls earlier1. 

The Greek banking system has stabilised since, with deposits showing a moderate 
growth during the last two years and the ELA fully repaid in 2019. Although access 
to capital markets remains difficult, there are some positive developments in this respect.  
Overall, depositor and market confidence is being gradually restored. 

Solvency of the Greek financial sector 

The  negotiations  and  execution  of  the  private  sector  involvement  (PSI)  were 
relatively successful, despite the exceptionally challenging environment and the 
sui generis and complex character of the exercise. However, the timing of the PSI 
and  the  exclusion  of  some  public  bondholders  have  attracted  some  specific 
criticism  in  the  literature  and  throughout  the  consultation  process.  From  a 
macroeconomic perspective, it would have been beneficial to front-load the PSI with the 
perception  of  markets  restored  earlier,  more  limited  contribution  to  the  currency 
redomination fears, larger stock of debt available for the haircut and consequent sizable 
savings for the  state,  stemming from the high cost  of borrowing and debt servicing. On 
the other hand, there were a number of major constraints on speeding up the PSI. 

As a result of the PSI, Greek  banks experienced total  losses of EUR 37.7 bln in 
their bond holdings (of which EUR 28.2 bln was held by four systemic banks) and 
other  loans to the Greek state.  This represented 10 per  cent  of their total assets, or 
170 per cent of their total Core Tier I capital at that time, while the banks’ provisions set 
aside for PSI-related losses were only EUR 5.8 bln. Therefore, banks net-of-provision losses 
from  Greece’s  sovereign  default  were  EUR  31.9  bln,  wiping  out  their  capital  base  and 
leaving  some  of  the  largest  banks  insolvent  and  others  seriously  undercapitalised.  As  a 
result of the PSI, the first recapitalisation was needed. 

Banks’  exposure  to  GGBs  was  already  high  before  the  financial  crisis  and 
continued to rise in the run-up to the PSI in 2012. One of the main explanations 
for this ‘home bias’ of Greek banks was government pressure. This higher exposure 
amplified the direct impact of the PSI on Greek banks’ balance sheets, despite the fact that 
a  similar  trend  of  domestic  banks  increasing  their  portfolio  of  government  bonds  during 
the initial stage of the crisis was also observed in other programme countries - Greece was 
not  an  exception.  According  to  the  relevant  literature  and  consistent  feedback  from  the 
interviews, government pressure also resulted in Greek banks - unlike some foreign banks 
(in  particular,  the  French  and  German  banks)  –  failing  to  benefit  from  the  opportunity 

1 as evident by the limited - although accelerating pace of - return of deposits and the fact that the 
ELA was fully repaid only in March 2019. Moreover, the Greek banks had to wait until the summer of 
2019 to resume access to long term unsecured funding at an affordable (but still higher than peers) 
cost. 

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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presented by the ECB Securities Markets Programme (SMP) facility to offload GGBs prior 
to the PSI. 

The  impact  of  the  PSI  on  market  confidence  could  not  match  the  uncertainty 
brought  by  double  elections  in  2012.  While  the  PSI  had  a  negative  impact  on 
confidence in 2011 and 2012 (and contributed to deposit outflows, along with downgraded 
credit  rating  of  the  Greek  banks),  the  evidence  suggests  that  its  effect  was  relatively 
contained and it was, in fact, the political uncertainty stemming from double elections in 
May-June 2012 that caused the drop in confidence between mid-2011 and mid-2012. 

Among the main  reasons for the significant capital  losses of  Greek banks  were 
PSI-related losses, reduction in the value of GGBs due to sovereign downgrades, 
impairment  of  the  assets  side  of  the  banks’  balance  sheets  because  of  non-
performing loans (NPLs), Grexit and related currency redenomination fears that 
led to deposit and funding outflows. In addition, banks’ profitability was severely affected 
by increases in the cost of funding, negative contribution of the international operations of 
some banks, and an overall drop in the volume of transactions. 

Approach  to  recapitalisation  and  resolution  of  the  Greek  banking  sector  was 
sound.  More  specifically,  the  implementation  of  an  approach  that  hinged  on  the 
safeguarding  of  four  systemically  important  ‘core  banks’,  while  closing  the  weakest  and 
poorly managed banks so that only sufficiently sound operations would get state support, 
allowed effective recapitalisation and resolution.  

In  terms  of  estimation  of  the  costs  of  recapitalisation  and  resolution,  the 
involvement of the BlackRock in the estimation of the credit loss projections for 
Greek  banks  under  the  first  and  second  recapitalisation  ensured  higher 
transparency and reduced the risk of interference. Although hindsight suggests that 
the  capital  needs  of  banks  were  underestimated,  this  was  primarily  the  result  of  the 
prolonged  and  severe  recession  (GDP  shrank  by  25  per  cent  between  2010  and  2013), 
together  with  some  exogenous  factors,  such  as  uncertainty  brought  by  the  SYRIZA 
government, which could hardly have been anticipated during those estimations.  

Overall,  despite  this  challenging  (and  continuously  uncertain)  backdrop,  the 
financial stability of the Greek banking system was preserved. This was managed 
without the major disruption that would have been caused by disorderly bankruptcies or 
market  jitteriness  due  to  poor  design  or  lack  of  swift  and  transparent  implementation. 
Importantly, all of the individual depositors were protected, irrespective of their size and 
type. Yet, banks remained fragile, and for  several years channelled funding towards the 
real economy to a limited extent.  

The  cost  of  restructuring  the  Greek  banking  sector  turned  out  to  be  very  high. 
Given the negative equity of virtually all banks following the PSI, it was well understood 
that  the  state  would  need  to  incur  some  losses  to  attract  private  investors.  The  third 
recapitalisation  -  with  no  effective  minimum  price  set  -  succeeded  in  minimising  new 
taxpayer funding. This came at the cost of completely diluting the Greek taxpayers’ existing 
stake in the four systemic banks, however: EUR 25.5 bln injected by the Hellenic Financial 
Stability Fund (HFSF) in banks in May 2013 was worth EUR 747 mln in November 2015. 

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Non-Performing Loans (NPLs) 

As the recession deepened, the level of NPLs rose sharply, reaching historically 
high levels across all main loan categories. The share of non-performing to total loans 
shot up from 5.7 per cent at the end of 2008 to 48.5 per cent at the end of 2016. NPLs 
rose dramatically across both the household as well as the corporate sector. The highest 
NPL ratio was recorded for consumer loans at the end of 2015 (63 per cent). The NPL ratio 
for business loans touched almost 50 per cent in 2016, while the NPL ratio for mortgages 
was close to 45 per cent in 2018. 

Mainly  the  result  of  economic  contraction,  it  was  further  exacerbated  by 
legislative changes which led to abuse by strategic defaulters. Legislative changes 
such as the blanket moratorium on primary residence auctions and the abuse of foreclosure 
protection weakened the payment culture and exacerbated the NPL problem. Several other 
legal and judicial impediments also contributed to the build-up of NPLs: lack of capacity 
and expertise within the Greek banks to deal with the growing volume of NPLs; a lengthy 
and inefficient judicial system; the lack of a legal framework to deal with NPLs; lack of a 
secondary market (for sale of NPLs) ; and loose credit conditions and lack of political will. 
Overall, the scale and gravity of the NPL problem was under-estimated by both the banks 
as well as the authorities. 

A  number  of  important  reforms  were  implemented  to  reduce  NPLs,  including  a 
strengthening  of  the  supervisory  framework  by  setting  operational  targets  for  NPL 
reduction, the creation of a secondary NPL market, an improved framework for recovery 
of  collateral  including  e-auctions,  and  the  removal  of  various  legal,  judicial  and 
administrative barriers to the management of NPLs.  

However, there have been shortcomings in their implementation and the direct 
impact  has  been  modest  so  far.  For  example,  the  use  of  OCWs  and  in-court 
restructurings by banks and borrowers remains limited. The underlying insolvency regime 
remains  ineffective  due  to  institutional  inefficiencies  and,  in  the  case  of  household 
insolvency, poor legal design; the share of failed auctions remains high. Rather than scaling 
back primary residence protection, a mortgage subsidization scheme was adopted in April 
2019 that perpetuates the weak payment culture.  

There have however, been some positive developments.  The pace of NPL reduction 
has recently accelerated and the topic is high on the political agenda. The government has 
created a new Deputy Minister position to oversee bank reform. Banks have agreed more 
ambitious  new  NPL  reduction  targets  (the  Prime  Minister  has  called  for  even  further 
acceleration),  and  the  ‘Hercules’  asset  protection  scheme  has  progressed.  The  Hercules 
Asset  Protection  Scheme  (under  which  NPLs  will  be  removed  from  balance  sheets  and 
securitised, backed by  government guarantees) is a major  step forward to clean up the 
balance sheets of domestic banks saddled with bad debts. 

Addressing NPLs will remain a challenge for some time. Although approximately a 
third of NPLs (equal to EUR 35bn, have been resolved since 2015), the NPL ratio remains 
stubbornly high at 40.6 per cent (as of December 2019). This needs to be reduced to get 
the  financial  system  functioning  again  and  to  support  a  sustained,  robust  economic 
recovery. 

Governance aspects of the Greek banking sector 

The  first  EAP  did  not  include  direct  measures  to  change  the  governance 
framework of the Greek banks. Yet, according to the first MoU between Greece and the 
three institutions, the possibility of restructuring bank governance was introduced in mid-
2010  with  the  founding  law  of  the  HFSF,  in  the  event  of  a  recapitalisation involving  the 
Fund. Only where the HFSF’s stake in a bank exceeded 90 per cent were the Fund’s voting 
rights in line with other ordinary shares, otherwise HFSF’s rights were very limited. This 
was  intended  to  avoid  State  interference  in  the  management  of  the  recapitalised  banks 
and to attract private investors. 

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Under  the  second  EAP,  the  establishment  of  the  Relationship  Framework 
Agreements (RFAs) was the only – albeit important - reform of bank governance. 
The  RFAs  and  their  amendments  defined  the  HFSF’s  role  as  a  shareholder,  notably  in 
monitoring the implementation of the banks’ restructuring plans and safeguarding banks’ 
operational independence. They also gave the HFSF certain approval and veto rights. In 
the first semester of 2013, the HFSF law provision on participation in the banks’ boards in 
case  of  a  recapitalisation  was  activated  in  the  context  of  the  first  recapitalisation  of  the 
four systemic banks. This was the first case of an explicit change to the governance of a 
bank stemming from the programme policies. 

Evaluations conducted by the IMF and ECA concluded that little was done during 
the first two EAPs to evaluate and restructure the governing bodies of the Greek 
banks. According to the IMF, this may have negatively affected banks’ ability to attract 
capital and confront asset quality problems (e.g. rising NPLs). On the other hand, some of 
the stakeholders interviewed noted that the limited role of the HFSF in the governing bodies 
of the banks was a result of the relevant provisions in its statute, whereby the HFSF was 
intended as a backstop against nationalisation. 

The most important changes to the management of the Greek banks came at the 
beginning  of  the  third  EAP,  through  the  implementation  of  the  HFSF’s  review  of  the 
boards  and  committees  of  the  four  systemic  banks,  with  newly  established  and  strict 
criteria  (so  called  ‘fit-and-proper’  rules).  There  has  been  a  broad  consensus  on  the 
relevance of the ‘fit-and-proper’ criteria. 

Regarding  the  HFSF’s  role  in  the  governance  of  the  banking  sector,  since  its 
foundation,  its  mandate  focused  de  facto  on  maintaining  the  capital  adequacy  of  banks 
rather than participating actively in their governance. It is generally agreed that the Fund’s 
limited active involvement in the management of recapitalised banks through their voting–
veto rights was the right decision. However, most participants in the Delphi survey believe 
that  the  Fund  should  have  been  more  active  in  steering  the  restructuring  effort  of  the 
systemic banks, either through the RFAs or their amendments. 

HFSF  governance  was  modified  at  the  beginning  of  the  second  EAP  with  the 
introduction  of  the  two-tier  structure  (General  Council  -  Executive  Board).  This 
type  of  management  structure  was  a  new  in  the  context  of  management  practices  in 
Greece, including the banking sector. Its introduction was motivated by the need to reduce 
the risk of political interference in HFSF functioning. The introduction of the Selection Panel 
into the HFSF’s structure during the third EAP was embraced for the same reason (some 
interviewees,  the  ECA,  European  Commission),  as  it  enhanced  independence  from  the 
Greek authorities. 

The  competences  of  the  Fund  significantly  broadened  with  the  third  EAP.  In 
addition  to  evaluation  of  the  governing  bodies  of  recapitalised  banks,  the  Fund  could 
participate in banks’ resolution processes and support them to deal with NPLs. The study 
considers  that  the  assignment  of  these  competences  indicates  the  intention  of  the  third 
EAP to strengthen the role of the HFSF in addressing these issues, rather than assigning 
more competences to other authorities, such as the BoG. 

The most impactful banking governance reform introduced in the course of the 
three EAPs was the review of their governing bodies in 2016, with the ‘fit-and-
proper’ criteria. Through this reform, the  HFSF effected the strongest improvement to 
the  effectiveness  of  banks’  management.  The  respective  effects  of  its  participation  as  a 
shareholder in their governing bodies were much more moderate. 

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1 

Introduction 

1.1  Context, scope and purpose of the study 

Three  Economic  Adjustment  Programmes  (EAPs)  were  implemented  in  Greece  over  the 
period 2010-2018. The three programmes consisted of providing loans to Greece in light 
of  the  financial  difficulties  it  was  facing,  conditionally  on  the  implementation  of  policy 
measures. The basic underlying implicit ideas behind the programmes were: (i) to avoid 
the default of a Euro-Area member in light of the perceived contagion risks to other euro-
area countries and systemic risks to the financial system; and (ii) to temporarily finance 
budgetary deficits, in the absence of access to capital markets, with strict limits that decline 
over time, and until a return to a healthier public finance situation could be achieved. 

Over the period from May 2010 to August 2018, a total of EUR 288.7 billion were disbursed 
to Greece at favourable conditions approximately 90 per cent of  which coming from the 
Euro-Area under various pool of funds. Note that different pools of funds had to be used 
since  in  2009-early  2010,  there  was  no  EU-level  facility  which  would  allow  to  provide 
support to members of the Euro Area. Therefore, following the Greek Loan Facility, specific 
macrofinancial stability (MFS) instruments for euro area countries were set up, as interim 
arrangements  (European  Financial  Stability  Facility,  European  Financial  Stabilisation 
Mechanism),  before  the  permanent  European  Stability  Mechanism  (ESM)  could  be 
established. All, except the European Financial Stabilisation Mechanism (EFSM), have been 
created outside of the EU budget. 

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Figure 1.1 

Key facts and figures on the Greek programmes 

Notes: The commitments coming from the GLF decreased to € 77.3 bn when Slovakia decided not 
to participate in the GLF and when Ireland and Portugal stepped down from the facility as they 
became programme countries themselves. 

The numbers for the commitments under the second programme need to be verified, making sure 
the resources rolled over from the first programme are consistently treated for both the Euro-area 
and the IMF. 

Source: ICF based on websites of the Council of the European Union, the ESM and DG ECFIN 

All programmes had the same objectives of helping to correct unsustainable imbalances 
and stabilise the financial sector on the short-term and restore the growth prospects and 
the country’s capacity to finance itself fully on the financial markets (fiscal sustainability) 
in the medium and long run.  

To achieve these objectives, a set of conditions were agreed primarily with the European 
Commission (EC) in the programme’s respective Memoranda of Understanding on Specific 
Economic  Policy  Conditionality  (MoU)  and  served  as  benchmarks  for  assessing  policy 
performance  as  part  of  the  quarterly  reviews.  In  that  context,  financial  sector  reforms 
under  the  first  EAP  focused  on  largely  ensuring  sufficient  liquidity.  Yet,  given  the 

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deterioration of the situation in the sector, including solvency risks, financial sector reforms 
gained  more  prominence  under  subsequent  two  EAPs  with  larger  financial  envelopes 
assigned to financial sector specifically, and more extensive conditionality.    

The study focused on analysing the characteristics and developments of the financial sector 
in  Greece  over  the  period  2010-2018  in  the  light  of  the  objectives  and  the  policies 
implemented  during  this  period.  It  covered  all  three  adjustment  programmes  and  all 
aspects of the programmes with relevance for the financial sector reforms in Greece during 
this period, in both design and implementation.  

The study answered the following questions: 

  Question 1: To what extent did the programme analyse appropriately the banking 
sector  risks  existing  before  the  1st  programme  (including  those  related  to  banks’ 
governance,  business  model,  ownership  structure,  credit,  provisioning  and 
investment policies, asset and liability structure), with the information at hand at 
the time and given the international financial markets context?  

  Question  2:  What  were  the  main  reasons  behind  the  acute  liquidity  needs  of  the 
Greek  banking  sector  throughout  the  entire  three  Programmes?  How  successful 
were  the  measures  taken  in  maintaining  liquidity,  restoring  confidence  (investor, 
depositor, interbank), and protecting financial stability?  

  Question 3a: What were the main reasons for the significant capital losses of Greek 
banks? What was the impact of the Private Sector Involvement (PSI) on the Greek 
financial sector and banks in particular?  

  Question  3b:  How  effective  were  the  measures  taken  under  the  programme  to 
stabilise the sector and the individual banks (e.g. recapitalisations, bank resolutions) 
and restore adequate capitalisation?  

  Question 4a: What were the most important reasons behind the large and persistent 

increase in NPLs in Greece?  

  Question 4b: To what extent were programme policies adequate in limiting the initial 
build-up of the NPL portfolio, given the underlying conditions? Subsequently, were 
programme policies adequate in facilitating effective NPL resolution and reduction?  

  Study question 5a: To what extent were programme policies adequate to improve 

the governance of Greek banks?  

  Study question 5b: To what extent has the Hellenic Financial Stability Fund (HFSF) 

played an effective role in this regard? 

1.2  Structure of this Report 

The remainder of this Report is structured as follows: 

  Section 2 provides a synopsis of the Greek banking sector prior and at the outset of 

the financial and sovereign crisis; 

  Section 3 provides an analysis and main findings; 

  Section 4 provides conclusions. 

The main report is supported by the following annexes: 

  Annex 1:  Methodological approach  for data collection and analysis along with the 

relevant limitations; 

  Annex 2: List of completed interviews; 

  Annex 3: List of reviewed documentation; 

  Annex 4: Summary of desk review on diagnostic work conducted by the BoG, EC, 

ECB and the IMF. 

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2 

Greek banking sector prior to and at the outset of the crisis 

The  development  of  the  Greek  financial  sector,  before  the  domestic  fiscal  crisis,  can  be 
separated  into  tree  distinct  periods.  The  first  period,  1980-1995,  is  characterized  by 
significant  distortions  due  to  intense  government  intervention.  Indicatively,  in  all  Greek 
banks  the  major  shareholder  was  the  Hellenic  Republic.  In  addition,  there  was 
administrative  setting  of  deposit  and  lending  interest  rates  as  well  as  quantitative 
restrictions  regarding  the  disposal  of  banks’  funding.  However,  the  necessity  for  the 
gradual harmonization of national laws with the Second Banking Directive until 1992, as 
well as the decision to liberalize capital movement among EU Member States, have resulted 
in  a  drastic  reduction  of  state's  intervention.  As  of  the  beginning  of  1990s  an  extensive 
reorganization  of  the  Greek  banking  system  took  place  through  a  significant  number  of 
privatizations,  mergers  and  acquisitions  and  through  the  expansion  of  Greek  banks’ 
network in Southeastern Europe. 

During 1996-2000, with the prospect of integration in the common currency union (euro), 
Greek banks had largely adapted to new, more competitive market conditions, providing a 
wide  range  of  financial  products  and  services.  The  growth  of  their  business  was 
accompanied  by  a  significant  increase  in  their  profitability  largely  based  on  net  interest 
income and fees from ordinary banking activities. 

During 2001-2008, the expansion of the Greek banking system continued, as a result of 
new  mergers,  acquisitions  and  the  entry  of  foreign  banks  in  the  Greek  market.  Such 
expansion, which had actually begun since 1998, is clearly evident from the fact that total 
loans  more  than  tripled  between  1998  and  2008  (from  EUR  80.4  to  EUR  270.3  bln), 
according  to  Bank  of  Greece  data.  In  more  detail,  while  loans  to  General  Government 
dropped by 11.3 per cent (from EUR 39.5 bln to EUR 35.1 bln), loans to firms increased 
by almost four times (from EUR 31.8 bln to EUR 123.8 bln). However, the most impressive 
increase  over  the  same  period  was  observed  in  household  loans  (12.2  times),  which 
reached EUR 111.5 bln in 2008 from only EUR 9.2 bln in 1998. Most of these loans (66.8 
per  cent  on  average)  were  mortgage  loans.  Thus,  the  above  credit  expansion  mainly 
concerned businesses and mortgage loans. 

In relation to some basic metrics of the Greek financial sector during the first decade of 
Euro adoption, the ratio of assets to Gross Domestic Product (GDP) initially dropped from 
1.39 in 2000 to 1.23 in 2003, due to the greater increase of Greek GDP than the increase 
in banks’ total assets. However, from 2004 onwards, the ratio increased from 1.24 to 1.76 
in 2008 (1.1.1.1Figure 2.1) as a result of the greater increase in banks’ total assets (+77.2 
per cent, from EUR 240.6 bln to EUR 426.3 bln) than the increase in Greek GDP (+24.9 
per cent, from EUR 193.7 bln to EUR 242 bln). 

Figure 2.1 

Assets of Greek banks as percentage of GDP, 2000 – 2008 

Source: BoG and IMF 

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With respect to capital adequacy of Greek banks, the Core Tier 1 ratio during period 2002-
2004 fluctuated around 9.7 per cent. However, after 2004 it dropped slightly to 8.7 per 
cent, next year (2006) increase to 9.5 per cent, and in 2007 and 2008 drops to 9.2 per 
cent and 7.9 per cent, respectively (Figure 2.2). 

Figure 2.2 

Core Tier 1 ratio of Greek banks, 2002 – 2008 

Source: BoG 

As far as the return on assets is concerned, it followed a downward trend during period 
2000-2004, from 20.3 per cent to 5.7 per cent, but then increased to 17.9 per cent in 2007 
to  fall  to  10.1  per  cent  in  2008.  Similar  is  the  picture  for  the  return  on  equity  index.  A 
downward trend observed during period 2000-2004 with the reduction from 1.8 per cent 
to 0.4 per cent, was followed by an upward trend during period 2005-2007 (from 0.9 per 
cent to 2.1 per cent), and contraction to 1 per cent in 2008 (Figure 2.3). 

Figure 2.3 

Return on Assets and Return on Equity of Greek banks, 2000 – 2008 

Source: BoG 

With respect to asset concentration of the five largest banks in Greece, it was below 60 
per cent until 1998. From then on, the concentration ratio hovered around 65 per cent and 
eventually reached 70 per cent in 2008. The Greek banking system was therefore highly 
concentrated at the start of the crisis (Figure 2.4). 

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Figure 2.4 

Assets concentration ratio of five largest banks, 1996 – 2009 

Source: ECB 

If  one  compares  the  ratios  of  Greek  banking  system  of  year  2008  with  those  of  other 
European countries that have implemented a fiscal adjustment program (Ireland, Portugal, 
Spain) or took  fiscal measures (Italy), it can  be  seen from the next  table that although 
somewhat lower, Greek banks had still fairly similar Capital Adequacy Ratio compared with 
banks from these countries and with the EU average, while the Return on Equity (RoE) was 
second highest after Spain. In addition, relative size of the Greek banking system was not 
as big as those of Ireland, Portugal, Spain and Italy even though its concertation ratio was 
already on the higher end, also compared to the to EU average. 

Table 2.1  Greek banking sector in the international context - selected indicators as of 

end-2008 

Banks 

Greek 

Irish 

Portuguese 

Spanish 

Italian 

EU average 

Total assets of 
banks as % of 
GDP 

Market share 
of the five 
largest banks 

Capital 
Adequacy 
Ratio (CAR) 

Return on 
Equity (RoE) 

192.1 

923.3 

269.5 

305.4 

226.2 

333.5 

69.6 

50.3 

69.1 

42.4 

31.2 

59.5 

10.0 

12.1 

9.4 

11.3 

10.4 

12.5 

12.4 

1.3 

5.6 

12.6 

4.9 

7.6 

Source: WB Global Financial Development Database, BoG, EC 

Overall, the Greek banks were often seen by a number of stakeholders as generally sound 
(also as a result of its limited exposure to toxic financial instruments) compare to some 
other European peers, and were not considered as a source of major concern during the 
years  prior  to  the  Greek  sovereign  debt  crisis.  Banking  system’s  indicators  related  to 
leverage, liquidity, profitability and capital adequacy fared not far from average practice 
among stronger EU peers and Greek banks could also count on the liquidity support from 
the Bank of Greece (BoG) and the European Central Bank (ECB), subject to the availability 
of eligible collateral2. 

2 Siokis, F. 2019. The Sword of Democles (Part I): the precariousness of the Greek banking 
at: 
sovereign 
system 

Available 

during 

crisis. 

great 

debt 

the 

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Nonetheless, the financial system was exposed to a series of long-standing risks, not least 
of  which  related  to  banks’  high  exposure  to  domestic  sovereign  assets,  loose  credit 
conditions  over  a  prolonged  time  period  and  reported  political  interference  in  corporate 
governance,  particularly  among  state  owned  banks.  Among  the  main  underlying 
vulnerabilities of the Greek banks in the pre-crisis period compared to their peers, one may 
highlight the following stylized facts. 

  Persistently high “home bias” through the sovereign-banking nexus. In particular, 
banks’ holdings of Greek Government Bonds (GGBs) increased during 2008-2009, 
exceeding 8 percent of their total assets, compared to Euro Area average below 4 
percent during the respective period (Figure 2.5); 

  Significant boom in private sector credit since euro entry, which increased banks’ 
market exposure to sudden deteriorations of the macroeconomic environment. It is 
noteworthy that the average growth rate of bank loans to private sector exceeded 
17  percent  per  annum  during  Greece’s  first  Euro  membership  decade  2001-2009 
(Figure 2.6); 

  Hidden risks related to Non-Performing Loans (NPLs). Although NPL ratio stood at 
5.7 per cent by the end-2008, it was already one of the highest in the EU at that 
time  and  the  propensity  of  the  whole  loan  portfolios  held  by  Greek  banks  to 
underperform was generally much higher (Figure 2.7); 

  Relative underdevelopment of capital markets, which restricted domestic portfolio 

diversification options (Figure 2.8); 

  Increasing  liquidity  risk.  Banks  faced  a  gradual  reduction  of  wholesale  funding 
options following the Global Financial Crisis and increasing reliance on short-term 
ECB repos financing (IMF Article IV report on Greece, August 2009); 

  Ineffective  regulatory  framework,  particularly  in  relation  to  bankruptcy  and  debt 
restructuring procedures, both for firms and households, and recovery of collateral; 

  Significant exposure in South Eastern European economies, at around 203 percent 

of equity (IMF Article IV report on Greece, August 2009). 

Figure 2.5 

Banks’ holdings of domestic government bonds, in % of total bank assets 

Source: ECB, Note: PIICS includes Portugal, Italy, Ireland, Cyprus and Spain. 

https://esg.gc.cuny.edu/2019/02/19/the-sword-of-damocles-part-1-the-precariousness-
of-the-greek-banking-system-during-the-great-sovereign-debt-crisis/ 

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Figure 2.6 

Greece: Annual growth rate of bank loans to private sector 

25%

20%

15%

10%

5%

0%

-5%

2
0
0
2
-
1
-
1

2
0
0
2
-
9
-
1

3
0
0
2
-
5
-
1

4
0
0
2
-
1
-
1

4
0
0
2
-
9
-
1

5
0
0
2
-
5
-
1

6
0
0
2
-
1
-
1

6
0
0
2
-
9
-
1

7
0
0
2
-
5
-
1

8
0
0
2
-
1
-
1

8
0
0
2
-
9
-
1

9
0
0
2
-
5
-
1

0
1
0
2
-
1
-
1

0
1
0
2
-
9
-
1

1
1
0
2
-
5
-
1

2
1
0
2
-
1
-
1

2
1
0
2
-
9
-
1

3
1
0
2
-
5
-
1

4
1
0
2
-
1
-
1

4
1
0
2
-
9
-
1

5
1
0
2
-
5
-
1

6
1
0
2
-
1
-
1

6
1
0
2
-
9
-
1

7
1
0
2
-
5
-
1

8
1
0
2
-
1
-
1

8
1
0
2
-
9
-
1

9
1
0
2
-
5
-
1

Source: BoG 

Figure 2.7 

Non-Performing Loans, December 2002 – June 2019 

Source: BoG 

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Figure 2.8 

Financial structure across countries, 2010 (Stock market cap / Total bank 
credit to private sector) 

Source: WB 

In  the  context  of  the  aforementioned  underlying  vulnerabilities  of  the  Greek  banking 
system, the onset of the sovereign debt crisis combined with an abrupt hit on economic 
activity,  hampered  banks’  access  to  wholesale  funding,  triggered  a  sudden  reversal  of 
credit  growth,  coupled  with  an  accelerating  increase  of  NPLs.  Increasing  public  debt, 
coupled with fiscal and current account deficits raised concerns about the sustainability of 
Greek public finances triggering quickly sharp increases in bonds yields, downgrades from 
credit rating agencies and eventual exclusion from the international capital markets3, firstly 
affecting the sovereign but quickly spreading over to the financial intermediaries as well, 
particularly  given  their  growing  exposure  to  domestic  government  debt.  The  spill  over 
effects  from  the  sovereign  crisis  to  the  banking  sector  attracted  the  attention  of 
international creditors, who identified the need for financial sector reforms attached with 
program conditionality. Hence, financial sector reforms became one of the three pillars of 
program reform areas, complementary to fiscal and structural areas.  

3  Main findings  

This section presents the background and the detailed findings from the study, separately 
for each of the study question. Succinct summary of all the findings is in turn outlined in 
Section 4.  

3.1  Diagnosis of the financial sector at the outset of the crisis 

3.1.1  Analysis of banking sector risks and vulnerabilities  

The following section addresses study question 1. 

3 World Bank, 2016. Bank Resolution and ‘Bail-In’ in the EU: Selected Case studies pre and 
post 
at: 
http://documents.worldbank.org/curated/en/731351485375133455/pdf/112265-
REVISED-PUBLIC-FinSAC-BRRD-CaseStudies.pdf  

Available 

BRRD. 

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Question 1: To what extent did the programme appropriately analyse the banking sector 
risks existing before the first programme (including those related to banks’ governance, 
business model, ownership structure, credit, provisioning and investment policies, asset 
and  liability  structure),  with  the  information  to  hand  at  the  time  and  given  the 
international financial markets context? 

In order to respond to this study question, this section examines the following aspects: 

  The state of the Greek banking sector at the outset of the crisis; 

  Whether the diagnostic work undertaken by the BoG,  European Commission, ECB 
and the IMF appropriately analysed the banking sector risks existing before the first 
programme; 

  Whether there were any major constraints on the analysis of the risks in the Greek 

banking sector prior to the first programme.  

3.1.1.1  State of the Greek banking sector at the outset of the crisis 

Prior to the outbreak of the sovereign crisis, the Greek banking sector was considered to 
have  sound  fundamentals  (see  discussion  under  Section  Error!  Reference  source  not 
found.). 

Overall,  the  Greek  banking  sector  was  seen  as  conservative  and  resilient,  with  the  last 
systemic banking crisis as far distant as 1932. Indeed the 2007-2009 global financial crisis 
had a relatively limited direct impact on the banking sector in Greece, as the Greek banks 
were less exposed to ‘toxic’ financial instruments and traditionally did not rely heavily on 
wholesale funding4.  

The banking sector, however, was not entirely immune to the global financial crisis, which 
served  to  expose  some  of  the  risks  and  vulnerabilities  that  had  built  up  over  time.  For 
example,  the  IMF’s  August  2009  Article  IV  Consultation  Report  highlighted  the  growing 
pressures on the Greek banks’ balance sheets and income arising from their exposure to 
South Eastern European (SEE) countries, slowdown in domestic credit growth and rising 
cost of wholesale funding. Stress tests conducted jointly by BoG and IMF staff concluded 
that the banking system had enough buffers to weather the expected downturn, although 
the report warned that ‘should the downturn be more prolonged and deeper than currently 
projected, and financial tightening return, domestic credit quality may deteriorate further 
than  envisaged,  and  portfolios  in  South  Eastern  Europe  (SEE)  could  face  additional 
pressures. These risks need to be managed cautiously and the authorities should remain 
prepared to act if systemic pressures arise.’ 

Notwithstanding  those  issues,  the  literature  (including  official  documents)  broadly 
acknowledges that the Greek crisis did not originate in the banking sector. Rather, unlike 
some of the other Euro-area crisis countries (e.g. Spain, Ireland), the protracted recession 
(GDP shrank by 25 per cent between 2010 and 2013) and sovereign debt crisis spilled over 
to the banking system in Greece, causing acute liquidity pressures and creating a solvency 
crisis. The literature5 identifies various issues and weaknesses in the Greek banking sector 
that  might  have  made  it  vulnerable  to  spillover  from  the  sovereign  crisis  (see  section  2 
discussion). These include: 

  Greek banks’ excessive exposure to sovereign risk;  

4  Boudghene,  Y.,  Buder,  M.,  Dellidou,  Z.,  Galand,  C.,  Iftinchi,  V.,  Lienemeyer,  M., 
Malamataris, C., and Malvolti, D., 2011. State aid control in a stability programme country: 
the case of Greece. Competition Policy Newsletter, 2011. 
5 For example, ECA, 2017. Special Report on the Commission’s intervention in the Greek 
financial  crisis;  IMF-IEO,  2016.  The  IMF’s  role  in  the  Euro  area  crisis:  financial  sector 
aspects. 

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  Issues related to governance and ownership of Greek banks are reported to have 
contributed to the high number of NPLs during the crisis (alongside the recession). 
The  literature  highlights  problematic  corporate  governance  practices,  with  poor 
management,  blurred  demarcation  line  between  the  state  and  the  state-owned 
banks, and inadequate assessment of credit risk.  For example, it is reported that 
loans were granted in the pre-crisis period to political parties and to corporations 
with low creditworthiness but privileged relationships with banks; 

  Significant boom in private sector credit since Euro entry, which increased banks’ 
market  exposure  to  sudden  deteriorations  of  the  macroeconomic  environment.  A 
sign of lax credit origination practices by Greek banks;  

  Weakening equity base - in March 2009, Greek banks’ equity totalled EUR 28.9 bln 
–  no  more  than  6.2  per  cent  of  their  balance  sheet  (EUR  473.1  bln),  while  their 
capital adequacy at the end of 2008 was lower than most EU banks as a percentage 
of risk-weighted assets. Loan loss reserves, although not below the EU average as 
a percentage of NPLs at the time, amounted to only EUR 7.2 bln6, much less than 
the amount necessary to cover the actual risk from the  rapid deterioration of the 
asset quality of the loan book that was about to follow. Reserves amounted to only 
3 per cent of the EUR 217.1 bln in loans granted, whereas the ratio of NPLs was 6 
per  cent.  In  fact,  in  its  interim  Monetary  Policy  report  in  November  2008,  BoG 
recommended that Greek banks should increase their loan provisions;  

  Inadequate  insolvency  framework  for  dealing  with  household  and  corporate 

bankruptcy;  

  Significant exposure of some Greek banks in SEE economies; 

  Increasing  liquidity  risk  -  banks  faced  a  gradual  reduction  of  wholesale  funding 
options in the wake of the global financial crisis and increasing reliance on short-
term ECB repo financing;  

  Payment  of  oversized  dividends  to  private  shareholders  -  during  2005-2008  (the 
last  year  in  which  the  Greek  banks  distributed  dividends),  dividend  rates  ranged 
from 2.5 per cent to 3.5 per cent, with banks distributing around half of their annual 
profits. Some commentators argue that this might have contributed to eroding the 
asset base of the Greek banks7;  

  Relative underdevelopment of capital markets, which restricted domestic portfolio 

diversification options. 

3.1.1.2  Whether the surveillance work undertaken by the BoG, European 

Commission, ECB and IMF appropriately analysed the banking sector 
risks existing before the first programme 

The Maastricht criteria - or the excessive deficit procedure – paid little attention to non-
fiscal  imbalances.  Similarly,  prior  to  the  financial  crisis,  little  notice  was  taken  of  the 
financial sector in the EU country surveillance8.  

The financial crisis sent shockwaves through every economy and, in 2011, the European 
Commission integrated financial sector monitoring as an integral part of the surveillance 
framework, both in the EAPs and in the European Semester9.  

6 According to 2008 data, Greek banks’ cash coverage ratio was 53.5 per cent, 12th highest 
among the 28 EU Member States.  
7 Toussaint, E., 2017. Banks are responsible for the crisis in Greece.  
8  European  Commission,  2017.  Coping  with  the  international  financial  crisis  at  national 
level in the European Context. Available at: https://ec.europa.eu/info/publications/coping-
international-financial-crisis-national-level-european-context_en 
9 ibid.  

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A  review  of  programming  documents,  existing  evaluations  and  audits  suggests  that 
discussions on the policy options and structural reforms under the first EAP did not start 
from  scratch.  The  EU  Council  Decision  (on  the  excessive  deficit  procedure)  and 
Recommendation  (on  structural  reforms)  of  16  February  2010  constituted  an  important 
basis and the starting point for programme discussions, especially on fiscal and structural 
policies. The debate on financial sector issues, however, was less well advanced. Indeed, 
the  ECA  noted  that10  ‘…the  first  Greek  programme  focused  primarily  on  public  finances 
rather  than  the  financial  sector’  and  it  ‘…  initially  comprised  only  three  financial  sector 
conditions  that  were  largely  inspired  by  the  IMF’s  findings  for  the  2009  Article  IV 
consultation.’  

In terms of diagnostic work, Greece became the subject of greater attention as early as 
2009. BoG and the IMF staff started conducting stress tests of Greek banks in the first half 
of 2009, focusing on credit, cross-border, market and liquidity risks11. The inputs of those 
tests were then considered in the design of the first EAP. It should be noted that the EU-
wide stress-testing of the banks by the ECB/EBA did not begin until 201112.  

Prior  to  the  first  EAP,  there  was  a  clear  realisation  among  the  institutions  that  banking 
supervision would need to be strengthened and this was, indeed, among the first provisions 
under  the  first  EAP13,  which  brought  closer  coordination  with  BoG.  This  included  more 
frequent (quarterly ones) stress tests, on-site inspections, faster data reporting by BoG, 
as well as increased staffing to cope with new responsibilities, such as supervision of the 
insurance sector, which was given to BoG in 2010. At the same time, BoG began also to 
publish its biannual Financial Stability Reviews (FSR), which offered a more comprehensive 
analysis of the risks for the Greek banking system than its regular reports.  

The European Commission interviewees involved in the initial diagnostics and design of the 
programme stated that, prior to the first EAP, the institutions used publicly available data. 
Once the programme began, they also used the supervisory data, e.g. daily reporting on 
liquidity positions of banks and data on NPLs (from BoG).  

Generally,  the  diagnostics  of  the  risks  in  the  banking  sector  conducted  by  the  BoG, 
European Commission, ECB and IMF - including those related to banks’ governance, such 
as business model, ownership structure, credit, provisioning and investment policies, asset 
and liability structure, and exposure risks - involved a number of channels, some of which 
are described here.   

Firstly, much of the information that fed into the diagnostics of the banking sector prior to 
the first EAP was collected and analysed as part of regular surveillance work conducted by 
BoG and the institutions. Secondly, once the decision was taken to initiate the first EAP, 
some European Commission, ECB and IMF diagnostic work was done on the ground, during 
the fact-finding missions of institutions’ technical teams to Athens that began in January 
2010  and  continued  until  April  201014  when  the  proposed  financial  sector  conditionality 
was finalised. The findings from the latter are generally not publicly available, apart from 
the insights gathered through the interview program conducted as part of this study, and 
therefore not covered in a comprehensive way in this analysis.    

The study team conduced an in-depth review of the selected surveillance publications from 
the  BoG,  European  Commission,  ECB  and  the  IMF  to  assess  the  type  of  risks  and  their 
relative  weighting.  Although  this  is  not  representative  for  all  surveillance  work,  it 

in 

ECA, 

2017. 

intervention 

Commission’s 

10 
https://www.eca.europa.eu/en/Pages/DocItem.aspx?did=43184  
11 IMF, 2009. Country Report No. 09/244, August 2009. 
12 ECB, 2013. A macro stress-testing framework for assessing systemic risks in the banking 
sector. Occasional Paper Series. 
13  European  Commission,  2010.  The  economic  adjustment  programme  for  Greece. 
Available  at:  https://op.europa.eu/en/publication-detail/-/publication/64c89a77-ddc4-
46f4-9bb0-18d7e80f6f0c/language-en 
14 Including direct discussions with the key Greek banks. 

Available 

Greece. 

at: 

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nevertheless  gives  some  sense  of  the  understanding  and  prioritisation  of  risks  by  the 
institutions and BoG at the time. Box 3.1 outlines the publications and sources that were 
subjected  to  this  in-depth  review,  while  Box  3.2  presents  the  summary  findings  of  that 
review. The full analysis is available in Annex 4. 

Box 3.1 

List of surveillance publications reviewed    

Bank of Greece 

- 
- 
- 
- 
- 
- 
- 
- 
- 
- 

Bank of Greece (2011a). Annual Report 2010, April 2011 
Bank of Greece (2011b). Monetary Policy 2010-2011, February 2011 
Bank of Greece (2010a). Monetary Policy Interim Report 2010, October 2010 
Bank of Greece (2010b). Financial Stability Review, July 2010 
Bank of Greece (2010c). Annual Report 2009, April 2010 
Bank of Greece (2010d). Monetary Policy 2009-2010, March 2010 
Bank of Greece (2009a). Interim Financial Stability Review, December 2009 
Bank of Greece (2009b). Monetary Policy Interim Report 2009, October 2009 
Bank of Greece (2009c). Financial Stability Review, June 2009 
Bank of Greece (2009d). Monetary Policy 2008-2009, February 2009 

European Commission 

-  Quarterly report on the Euro-area (QREA) for the period March 2009-June 2010 
- 

Economic Forecasts (EEF) for the period spring 2009-autumn 2010 

ECB 

- 
- 
- 

IMF 

- 

- 
- 
- 
- 

ECB (2010). Financial Stability Review, June 2010 
ECB (2009a). Financial Stability Review, December 2009 
ECB (2009b). Financial Stability Review, June 2009 

IMF (2010a). Staff report on first review under the stand-by arrangement, 
September 2010 
IMF (2010b). Staff report on interim review for stand-by arrangement, July 2010 
IMF (2010c). Staff report on request for stand-by arrangement, May 2010 
IMF (2009a). Selected Issues Papers on Greece, August 2009 
IMF (2009b). Article IV Consultation Staff Report for Greece, August 2009 

Box 3.2 

Summary findings – in-depth review of selected surveillance 
publications 

BoG 

Most  of  the  BoG  reports  prior  to  and  during  the  initial  period  of  the  first  EAP  were 
published as part of its regular publication series, i.e. annual reports, monetary policy 
interim reports (MPIRs) and monetary policy reports (MPRs). In 2009, BoG issued a new 
publication series, the FSR, which was published twice a year, in June (main report) and 
December (interim report). 

Annual reports, MPIRs and MPRs from the period 2009-2011 paid considerable attention 
to the issue of rising NPLs, as well as deteriorating liquidity. Risks stemming from the 
deteriorating fiscal situation were also highlighted (e.g. impact of sovereign downgrades 
on banks’ ratings). Yet, the review found no references to loose credit policy prior to the 
crisis or issues around corporate governance of Greek banks. 

The  first  two  FSRs  published  in  2009  did  not  include  an  explicit  warning  about  the 
sovereign  debt-servicing  conditions–banking  sector  feedback  loop.  However,  the  third 
report  (published  in  2010)  emphasised  the  fact  that  international  money  and  capital 

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markets became inaccessible from end-December 2009 due to increasing concerns about 
Greece’s fiscal prospects  - practical evidence that the  sovereign-banking nexus was a 
material issue. The Review also discussed the issues of NPLs, decline in credit  supply, 
corporate governance, risks of activities of Greek banks in emerging European countries, 
outflow of deposits and decline in house prices.  

European Commission  

The QREA provided an aggregate analysis of economic developments in the Euro-area 
during a given quarter, without too much country-specific detail. Generally, these reports 
did  not  feature  specific  analysis  of  Greece’s  banking  sector  risks,  with  related  issues 
mentioned only briefly as part of the broader Euro-area analysis. For example, the March 
2009  QREA  referred  to  loose  credit  policies  fueling  the  rapid  rise  in  property  prices 
observed in Spain, Portugal and Greece, in the context of a discussion on the build-up 
of current account imbalances within the Euro-area. The QREAs produced in 2010 made 
no specific mention of Greek banking sector issues, even in the context of the broader 
Euro-area analysis. 

The  EEFs  were  produced  three  times  a  year  between  spring  2009  and  autumn  2010. 
They made references to banking sector liquidity issues and weak credit supply as a risk 
factor for Greece (the downside risk to economic activity via bank-lending channel) and 
highlighted  the  vulnerability  inherent  in  the  large  increase  in  lending  to  households. 
Again, there was no reference to sovereign risk from high exposure to GGBs, high NPLs 
or weak corporate governance. The review of EFFs also suggests some underestimation 
of the situation in Greece in the autumn 2009 EEF. There was some expectation at that 
(defined  as  upside  risk  of  the  forecast  but  not  baseline  scenario)  that  a  gradual 
improvement in liquidity and capitalisation of Greek banks might contribute to a modest 
credit expansion in 2010, which of course did not prove to be the case. The autumn 2010 
EEF  also  provided  a  rather  optimistic  outlook,  anticipating  that  an  improvement  in 
liquidity and capitalisation of Greek banks might help to sustain a modest expansion in 
credit in 2011, which, in turn, could fuel private consumption and foster investment.  

ECB 

Despite being published prior to and at the early stages of the first EAP, neither of the 
ECB’s two 2009 FSR reports made any specific references to Greece’s particular financial 
sector risks. 

The  2010  FSR  referred  to  Greece-specific  risks  by  describing  the  onset  of  the  Greek 
sovereign crisis, noting that ‘the main trigger for the market’s reappraisal of sovereign 
risk appeared to be the fiscal woes of Greece and uncertainty surrounding the prospect 
of agreeing a credible fiscal consolidation plan’. 

IMF 

The five IMF country reports for Greece published between 2009 and 2010 offered the 
most  comprehensive  analysis  of  underlying  risks  in  the  Greek  financial  sector.  They 
stressed  the  liquidity  risks  (including  as  a  result  of  sovereign-banking  loop)  and 
discussed (extensively) the issues around NPLs. Unlike other organisations’ publications, 
the  IMF  country  reports  referred  explicitly  to  solvency  risks.  Other  risks  discussed 
included:  high  exposure  of  Greek  banks  to  some  emerging  European  countries; 
confidence erosion (outflow of deposits); market risks (including volatilities on equity, 
bonds and forex); and (briefly) governance issues in Greek banks.   

Overall, the review of the selected BoG, European Commission and ECB publications shows 
that the coverage of the comprehensive set of risks was not comprehensive enough, with 
the IMF offering the most comprehensive analysis of underlying risks. For instance, even 
though the European Commission’s QREAs and EEFs did not delve into sovereign risk, it 
featured  fairly  extensively  in  the  July  2010  document  underpinning  the  first  EAP  that 

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offered a synopsis of the Commission’s diagnostics15. It is fair to say that it was liquidity 
issues (and not solvency) that were most pressing at the initial stage of the crisis, thus 
they rightly received most attention. Yet, somehow overly optimistic projections of credit 
supply provided in the autumn 2009 and spring 2010 EEFs suggest that the gravity of the 
situation in  the  Greek  banking  sector  was  somewhat  underestimated.  The  lack  of  BoG’s 
explicit acknowledgment of the risks related to the pre-crisis loose credit policies and issues 
with the corporate governance of Greek banks also demonstrates some gaps.  

It is therefore worth exploring whether there were any strong indications/signs – from the 
information at the time and in the absence of a European supervisory authority - that the 
first programme should have envisaged straight from the start a more in-depth assessment 
of  the  financial  health  of  the  core  Greek  banks,  similar  to  the  BlackRock  Asset  Quality 
Review (AQR) in 2013 (see Section 3.3).  In the view of most of the staff interviewed from 
the BoG and the European Commission, if executed earlier, the BlackRock AQR would have 
had  very  limited  added  value,  due  to:  (i)  negligible  visibility  on  the  size  and  potential 
impact  of  a  PSI  in  2010/  early  2011;  and  (ii)  inconsistency  of  macroeconomic  data 
(including all key drivers of credit losses), which was even greater at the early stage of the 
crisis.  The  first  EAP  did  foresee  some  potential  deterioration  of  banks’  asset  quality  by 
endowing the Financial Stability Fund with EUR 10 bln. 

In retrospect, of all of the risks in the Greek banking sector, it was the sovereign-banking 
feedback  loop  that  had  the  most  severe  implications  (see  Section  3.3).  This  raises  the 
question  of  whether  it  was  adequately  identified  and  diagnosed,  bearing  in  mind  the 
constraints on policy-making during the crisis, including the inherent difficulty of forward-
looking diagnostics and forecasts. The literature and the interview programme clearly point 
to the sovereign-banking feedback loop as the central issue in the Greek context, and this 
view  is  shared  by  Delphi  survey  respondents,  who  also  view  it  as  the  key  factor  that 
increased the vulnerability of Greek banks (1.1.1.1Figure 3.1).    

Figure 3.1 

Delphi survey – to what extent did the following factors contribute to 
making the Greek banks vulnerable to the sovereign debt crisis and 
subsequent developments? 

Source: Delphi survey, N=30 

An  IMF  evaluation16  concluded  that  the  IMF  was  the  first  among  public  authorities  and 
academics to understand and acknowledge the role of the bank–sovereign vicious circle as 
the central driver of the Greek crisis. The same evaluation states that ‘the bank–sovereign 
vicious circle became a major feature of the IMF’s interpretation of the Euro area crisis in 

15  European  Commission,  July  2010.  The  Economic  Adjustment  Program.  Available  at: 
https://op.europa.eu/en/publication-detail/-/publication/64c89a77-ddc4-46f4-9bb0-
18d7e80f6f0c/language-en 
16 IMF-IEO, 2016. The IMF’s role in the Euro area crisis: financial sector aspects.   

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the fall of 2011, well ahead of European authorities’ interpretations’, although it should be 
noted that based on the study team information, no Commission staff were interviewed for 
that evolution. 

The IMF assessment was disputed by selected interviewees, including some of those from 
the European Commission and BoG. In essence, they agreed that there was late recognition 
of the full magnitude of this risk, partly due to an underestimation of the impact of fiscal 
consolidation  measures  on  the  whole  economy  that  then  trickled  down  to  the  banking 
system. However, they observed that key issues such as high exposure of banks to GGBs 
and  implications  of  the  deteriorating  fiscal  stance  and  sovereign  downgrades  were 
straightforward and well understood. Given that there was no history of sovereign default 
and  the  general  perception  of  risk-free  debt  of  Eurozone  countries,  almost  all  key 
stakeholders failed to foresee the full scale of the damage caused to the Greek banks. The 
interviewee from Moody’s broadly concurred with that assessment in relation to the initial 
stage of the  crisis: ‘IMF reports were showing  some  concerns. But it  was almost boiler-
plate IMF language. So before the crisis hit, nobody’s lights were flashing. The information 
shock was quite severe.’ According to BoG: ‘…there was no realisation of the severity of 
the situation and the risk of the global banking crisis turning into a sovereign debt crisis 
for countries with high deficits and debts such as Greece. On the contrary, the international 
crisis, galloping at rapid rates all over the world, was treated as a distant phenomenon, 
irrelevant for Greece’17.    

More generally, the high exposure to GGBs was broadly acknowledged as a vulnerability 
factor ex post, but the discussions at that time had less focus on the reasons behind such 
higher exposure ex ante. 

Another factor that weighed against an accurate assessment of the risk stemming from the 
sovereign-banking  feedback  loop  was  flawed  macro  projections  for  the  whole  Greek 
economy. From October 2009, uncertainties and fears around the budgetary situation of 
Greece  were  fuelled,  as  the  incoming  government  revised  estimates  of  the  2009  deficit 
from 6.7 to 12.7 per cent of GDP. Indicatively, the institutions’ macroeconomic forecasts 
at  the  time  of  launch  of  the  first  and  second  EAP  largely  underestimated  the  size  of 
forthcoming negative growth by an average of 4.6 ppts and 2.8 ppts of GDP per annum 
respectively, over the 5-year medium term period (Figure 3.2). It should be noted that, 
historical data available at the time of the forecasts also underestimated the size of actual 
recession  which  was  already  underway,  by  an  average  of  2.8  ppts  and  2.1  ppts  of  GDP 
respectively over a 2-year period preceding the launch of each EAP18. Conversely, forecasts 
at  the  time  of  launch  of  the  third  EAP  underestimated  the  pace  and  size  of  economic 
recovery.  

17 Bank of Greece, 2013. The Chronicles of the Great Crisis. The Bank of Greece: 2008-
2013. 
at: 
https://www.bankofgreece.gr/Publications/Selections%20from%20The%20Chronicle%20
of%20the%20great%20crisis%20-%20the%20Bank%20of%20Greece%202008-
2013.pdf 
18 The actual size of the recession was revealed by statistical revisions made by the Hellenic 
Statistical Authority, which were published after the launch of the programmes. 

Available 

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Figure 3.2 

Growth forecasts actual GDP during the first and second EAP 

Source:  DG  ECFIN  programme  documents  for  first  and  second  EAP  forecasts,  ELSTAT  for  revised 
actual rates as of 2020. 

Note: (1) the first EAP forecast in May 2010 was based on recorded real GDP growth rate of +3.0% 
and -2.0% for the years 2008 and 2009, which was subsequently revised by ELSTAT to -0.3% and -
4.3%,  respectively.  (2)  The  second  EAP  forecast  in  March  2012  was  based  on  recorded  real  GDP 
growth rate of -3.3%, -3.5% and -6.9% for the years 2009, 2010 and 2011, which were subsequently 
revised by ELSTAT to -4.3%, -5.5% and -9.1%, respectively 

3.1.1.3  Whether there were any major constraints to the analysis of the risks in 

the Greek banking sector prior to the first programme 

Overall,  the  study  did  not  find  any  major  constraints  to  the  analysis  of  the  risks  in  the 
Greek banking sector prior to the first EAP, notwithstanding the issue of macroeconomic 
projections discussed above.  

While fiscal and national accounts data turned out to be inaccurate, this was not the case 
for financial data. Key interviewees from the European Commission found pre-programme 
financial data supplied by the BoG to the three institutions to be in line with data provided 
by other central banks in the EU. More generally, a vast majority of interviewees, including 
those from the European Commission, believe that the scope, frequency of data provision 
and  reliability  of  the  available  financial  data  underpinning  diagnostics  (prior  to  the  first 
programme)  was  satisfactory.    The  study  team  found  that  publicly  available  IMF  staff 
reports  did  not  flag  any  pre-programme  data  weaknesses  that  would  have  hindered 
satisfactory IMF surveillance of financial sector developments. However, the Fund’s staff 
noted that the data requirements for programmes are more intensive. 

The cooperation between the institutions and the BoG was characterised as adequate by 
the former ones. 

3.2  Liquidity of Greek banks and measures to maintain it 

3.2.1  Effectiveness of the measures in maintaining liquidity, restoring 

confidence (investor, depositor, interbank), and protecting financial 
stability 

The following section addresses study question 2. 

Question 2 What were the main reasons behind the acute liquidity needs of the Greek 
banking sector throughout the entire three Programmes? How successful were the 
measures taken in maintaining liquidity, restoring confidence (investor, depositor, 
interbank), and protecting financial stability? 

In order to respond to this study question, this section examines the following aspects: 

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  Main reasons behind the acute liquidity need of Greek banks; 

  Effectiveness of the measures taken to maintain liquidity and confidence. 

3.2.1.1  Main reasons behind the acute liquidity need of Greek banks 

At the end of 2009, Greek banks lost access to international money and capital markets. 
In  October  2009,  Greece’s  incoming  socialist  government  announced  that  that  the 
country’s  budget  deficit  was  far  bigger  than  previously  reported.  Revised  estimates  for 
2009 raised the budget deficit from 3.7 per cent to 12.5 per cent of GDP19. Concerns about 
the state of the country’s public finances triggered a series of sovereign downgrades by 
rating agencies, and investors started pulling out of Greek bonds. In the general context 
of the turbulence affecting the debt markets for the Greek government, banks lost market 
access at the end of 200920,21.  

In  parallel,  the  Greek  banks  experienced  considerable  deposit  outflows.  Private  sector 
deposits  (e.g.  deposits  by  households  and  businesses)  with  Greek  banks  had  grown 
strongly  during  the  pre-crisis  years,  peaking  at  about  EUR  238  bln  in  September  2009 
(Figure 3.3). However, from October 2009, Greek banks experienced a steady outflow of 
deposits, fuelled by concerns about their deteriorating balance sheets, the solvency of the 
Greek state, and the increased tax obligations of depositors22.  

Figure 3.3 

Private sector deposits by sector, EUR millions 

Source: Bank of Greece 

The loss of access to capital markets and persistent deposit outflows put banks’ liquidity 
under acute pressure. From 2009, successive credit rating downgrades of their own bonds 
and Greek sovereign debt increased their cost of funding23, while recurrent deposit flights 

19  Barber,  T.  (2009).  Greece  vows  action  to  cut  budget  deficit,  October  2009,  Financial 
Times 
20 IMF (2010) Greece Country Report No. 10/111, May 2010, IMF 
21 Coppola, F. (2015) The way to  fix Greece is to fix the banks, 27 July 2015, Financial 
Times 
22 Bank of Greece (2010). Annual Report for the year 2009, p. 160. 
23 Successive sovereign downgrades also led to a devaluation of assets that had been used 
as collateral for refinancing from the Eurosystem. 

29 

June 2020 

050.000100.000150.000200.000250.000Jan 01May 01Sep 01Jan 02May 02Sep 02Jan 03May 03Sep 03Jan 04May 04Sep 04Jan 05May 05Sep 05Jan 06May 06Sep 06Jan 07May 07Sep 07Jan 08May 08Sep 08Jan 09May 09Sep 09Jan 10May 10Sep 10Jan 11May 11Sep 11Jan 12May 12Sep 12Jan 13May 13Sep 13Jan 14May 14Sep 14Jan 15May 15Sep 15Jan 16May 16Sep 16Jan 17May 17Sep 17Jan 18May 18Sep 18Jan 19May 19Sep 19Jan 20Households & Non-profit InstitutionsFinancial corporationsNon -financial corporationsDeposits peak in September 2009crisis years 
 
                                           
Study on "The financial sector in Greece during the economic adjustment programmes: 
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increased  their  need  for  external  funds.  Liquidity  needs  for  Greek  banks  during  2010 
reached a total of EUR 74 bln, stemming from three causes, as follows24: 

  EUR 40 bln due to deposit outflows; 

  EUR 26 bln due to the need to replace/add collateral whose rating was downgraded 
(and  hence  more  collateral  was  needed  to  maintain  access  to  existing  levels  of 
Eurosystem funding); 

  EUR 8 bln due to expiring liabilities that had to be rolled over. 

Increasing loan impairment (due to a deepening recession), put further pressure on the 
liquidity position of the Greek banks. Shortage of liquidity forced the Greek banks to further 
cut their lending to businesses, which created a vicious loop.  

Figure 3.4 

Factors exerting liquidity pressures on Greek banks 

Loss of access to international wholesale markets

Considerable private sector deposit outflows

Successive downgrades leading to a devaluation of assets used as collateral

The need to repay EUR 8 bln of maturing debt in 2010

Increasing loan impairment due to a deepening recession

The  Greek  government  guarantees  for  bank  bonds  provided  some  relief.  In  November 
2010,  to  facilitate  access  by  Greek  banks  to  wholesale  markets  and  to  increase  repo-
eligible collateral, the Greek government released the previously approved EUR 25 bln of 
guarantees for bank bonds25.  This offset the liquidity constraints facing the banks to some 
extent.  

Market confidence plunged in the spring of 2011, amid growing social unrest, a deepening 
recession and speculations about debt restructuring. Some analysts even suggested that 
Greece should default and exit the Euro zone26. Consequently, sizeable deposit outflows 
took  place  during  April  –  June  2011,  fanned  by  fears  of  a  Grexit  (and  related  concerns 

24 Bank of Greece Annual Report 2012 
25 IMF Second Review under the Stand by Arrangement, December 2010. The provision of 
government  guarantees  for  bank  bonds  was  the  second  (and  most  extensively  used) 
pillar of a scheme to support the banking sector set up initially in November 2008. The 
original November 2008 scheme envisaged 3 pillars: a) the State providing capital by 
acquiring  preference  shares  –  budget  EUR  5bn,  b)  Greek  government  guarantees  for 
bank bonds (GGBs) – budget EUR 15bn and c) support through the issuance of Greek 
State  special  purpose  securities  to  credit  institutions  –  budget  EUR  8bn.  The  second 
pillar was prolonged multiple times (in fact it is still active but practically unused ) and 
the budget of EUR 15bn was increased to EUR 30bn on 12 May 2010, and then again to 
EUR 55bn (Commission decision of 30 June 2010 in State Aid N 260/2010 "Extension of 
the Support Measures for the Credit Institutions in Greece") and EUR 85bn (Commission 
decision of 4 April 2011 in State Aid SA.32767 (2011/N) ''Amendment to the Support 
Measures for the Credit Institutions in Greece”) before falling again to its current budget 
of EUR 30bn. 

26 Roubini Economic Research (2011). 

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about  a  forcible  currency  redenomination)27.  Many  Greek  households  and  businesses, 
under financial pressure, ran down their deposits / cash reserves to make ends meet and 
repay debt. Fears of a disorderly default and Grexit resurfaced again in the run-up to the 
May 2012 parliamentary elections which eventually ended in a deadlock28. This resulted in 
a  fresh  round  of  deposit  outflows.  Deposits  stabilised  only  after  the  new  parliamentary 
elections  in  June  2012  produced  a  coalition  government  that  declared  its  intention  to 
implement  the  terms  of  the  bail-out  agreement29.  However,  during  this  entire  period  of 
economic  and  political  turmoil  (January  2010  to  June  2012),  private  sector  deposits 
plummeted by 37 per cent, as Greek households and businesses pulled close to EUR 87 
billion out of domestic banks.  

Throughout the crisis, Greek banks were heavily reliant on the ECB for their liquidity needs. 
The  major  sources  of  funding  for  European  banks  are  usually  deposits,  interbank 
borrowing, capital markets and the liquidity operations carried out by the ECB. During the 
crisis, the markets remained closed to many Greek banks, and consequently, most of their 
wholesale funding came  from the Eurosystem. ECB’s  extraordinary measures to provide 
liquidity via the Eurosystem included: 

  Suspension of the link between sovereign credit ratings and eligibility of collateral 

for refinancing operations30;  

  Intervention directly in the government bond market under the SMP31, with the aim 
of containing the risk of spillover to other banking systems and keeping borrowing 
costs at reasonable levels. The  ECB purchased EUR 50 bln of GGBs between May 
2010 and February 2012 when it was terminated32, although around 75 per cent of 
that amount was bought between May and July 201033. According to the IMF, the 
SMP made an important contribution to safeguarding the banking system’s liquidity 
by stabilising prices for government bonds34 (see Section 3.3 for a further discussion 
on the role of the SMP). 

  Acceptance  of  uncovered  bank  bonds  guaranteed  by  the  government  as  eligible 

collateral for refinancing operations. 

Over time, however, as wholesale funding markets remained closed and banks’ access to 
Eurosystem  refinancing  suffered  due  to  a  lack  of  eligible  collateral35,  Greek  banks 
increasingly relied on emergency liquidity assistance (ELA) from the Bank of Greece (BoG). 
Borrowing  through  ELA  came  at  a  higher  price  than  borrowing  through  monetary  policy 
operations,  which  further  affected  banking  sector  profitability  –  see  0.  At  its  peak  in 
February 2012, banks’ reliance on Eurosystem funding and the ELA reached unprecedented 

27  Christodoulakis,  G.  (2014).  Managing  Risks  in  the  European  Periphery  Debt  Crisis: 
Lessons  from  the  Trade-off  between  Economics,  Politics  and  the  Financial  Markets,  23 
December 2014, Springer. 
28 Allen, P. (2012). Huge Sense of Doom Among ‘Grexit’ Predictions, 14 May 2012, CNBC  
29 New Democracy, PASOK and the minor Democratic Left party  joined  forces  to form  a 
coalition government led by Antonio Samaras and pledged to ‘do whatever it takes’ to keep 
Greece in the eurozone. 
30 In May 2010, the ECB Governing Council decided to suspend the minimum requirements 
for credit quality thresholds for certain marketable instruments issued or fully guaranteed 
by the central governments of Euro area Member States under an EU/IMF programme.  
31 
https://www.ecb.europa.eu/pub/pdf/other/mb201006_focus01.en.pdf 
32 Christodoulakis, G. (2014). op cit. 
33 Christodoulakis, G. (2014). op cit. 
34 IMF First Review under the Stand-By-Arrangement. 
35 The collateral the banks could use to obtain liquidity from the Eurosystem became either 
impaired or ineligible following the downgrading, first, of the country’s credit rating, and, 
then, their own.  

Available 

Monthly 

(2010). 

Bulletin 

June. 

ECB 

at: 

- 

June 2020 

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levels, of almost EUR 160 billion (over 80 per cent of GDP) – Figure 3.5Error! Reference 
source not found.. 

Figure 3.5 

Greek banks - private sector deposits and Eurosystem funding profile, EUR 
bln 

Source: Bank of Greece. Note: Repos not included 

Box 3.3 

Emergency Liquidity Assistance (ELA) 

From August 2011 onwards, Greek banks started relying heavily on the ECB’s special 
credit line to the Greek banking system, called the Emergency Liquidity Assistance 
(ELA). Faced with temporary liquidity problems, a solvent financial institution could 
access ELA via the national central bank. Under ELA, a broader range of assets were 
accepted as collateral (with relevant haircut being higher), but the funds were lent 
at a rate incorporating a 100 to 150bp premium over the refi rate (the rate at which 
ECB carried out refinancing operations)36. 
The  ELA  agreement  between  Eurozone  NCBs  and  the  ECB,  specified  the  rules 
applying to the provision of ELA and the role of the Governing Council of the ECB. 
According to it, the ECB Governing Council had the power to limit ELA operations if 
they were deemed to be interfering with the Eurosystem’s objectives and missions. 
It set limits on the overall volume of ELA operations envisaged for the Greek banks. 
These limits were reviewed on a weekly basis and were incrementally increased by 
the ECB over time. The ECB Governing Council made decisions based on a two-thirds 
majority of the votes cast. 

Greek banks depended heavily on ELA, during the periods they were suspended as 
eligible counterparties with the Eurosystem. For example, in the period following the 
PSI (May to December  2012), Eurosystem  funding came  almost  exclusively in the 
form of ELA, with the ECB having disqualified most Greek banks from accessing the 
monetary  policy  operations  window  (due  to  capital  adequacy  ratios  below  the 
minimum requirement)37. Banks also took heavy recourse to this expensive source 
of financing again in the first half of 2015, as deposits dropped and they were unable 
to use Greek government bonds in refinancing operations.  

36 BNP Paribas, 2015. 
37 IMF First and Second Review under the extended arrangement under the extended fund 
facility, January 2013, 

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The ELA had a high price tag attached to it. The direct cost of the ELA is estimated 
to be in the order of EUR 4.5 bln, of which EUR 2 bln concerned the 2011-14 period 
and EUR 2.5 bln the 2015-2019 period (Figure 3.6). The ELA also had an indirect 
cost for the banks as it reduced their lending capacity. 

Figure 3.6 

ELA cost estimation for banks, in EUR bln 

Source: Bank of Greece, ECB, Data Modification: ΙΟBE    

There  was  some  respite  following  the  approval  of  the  second  economic  adjustment 
programme and execution of the PSI. Liquidity pressures eased between June 2012 and 
December  2014  as  deposits  stabilised  (circa  EUR  10  bln  of  domestic  private  deposits 
returned to the banking system during this period)38. In 2013, Greek banks regained access 
to cross-border interbank markets and during most of 2014 had easy access to interbank 
funding39. During 2014, the Greek banks gradually eliminated their dependence on ELA, as 
a  result  of  an  increase  in  their  eligible  collateral,  interbank  repo  transactions  and  share 
capital increases40.  Banks were able to raise EUR 8.3 bln in fresh private equity through 
the  second  recapitalisation  process  that  took  place  in  May  and  June  2014.    Greece’s 
improving credibility and market confidence in the prospects of the economy even allowed 
the banks to raise more than EUR 5 bln via issuance of debt on international markets during 
201441.  

The  period  of  stability  was  short-lived.  The  election  victory  of  SYRIZA  in  January  2015 
triggered  a  fresh  wave  of  Grexit  fears  and  a  deposit  run.  In  January  2015,  SYRIZA 
government came to power on the back of an anti-programme and anti-austerity rhetoric. 
The  confrontational  approach  adopted  by  the  government,  de  facto  suspending  the 
economic adjustment programme, led to a crisis of confidence and liquidity.  In February 
2015,  ECB  withdrew  the  waiver  on  eligibility  of  Greek  government  bonds  as  acceptable 

38 Cyprus bail-in did not seem to have a contemporaneous effect on Greek deposits, albeit 
it set a precedent which may have been looming among Greek depositors in forthcoming 
comebacks of uncertainty 
39 Bank of Greece Annual Report 2013 and 2014. 
40  In  March  2014,  Alpha  Bank  and  Piraeus  Bank  raised  enough  new  private  capital  to 
repurchase preference shares held by the government for EUR 940 mln and EUR 750 mln, 
respectively.  Source:  IMF  Fifth  Review  under  the  extended  arrangement  under  the 
extended fund facility, June 2014. 
41 Monokroussos, P. and Gortsos, C., 2017. Non-Performing Loans and Resolving Private 
Sector Insolvency: Experiences from the EU Periphery and the Case of Greece 

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collateral42,43 (in the press release announcing the decision, the ECB pointed out that it was 
not possible to assume a successful conclusion of the programme review44). As a result, 
Greek banks could no longer use Eurosystem open market operations to raise liquidity at 
very low rates (0.05 per cent); instead they had to rely on the more costly ELA mechanism 
(at a rate of 1.55 per cent)45. 

Meanwhile, as the liquidity pressures created by the deposit flight amplified, the ECB kept 
raising its limit on ELA for Greek banks to cover their huge deposit outflows (the ELA limit 
was increased from EUR 50 bln in February 2015 to EUR 89 bln in June 2015). But on 28 
June 2015, the ECB’s governing council decided against further increases in the amount of 
ELA available to Greek banks due to the uncertainty created by the Syriza government’s 
surprise decision to call a snap referendum46. This meant that Greek banks could no longer 
meet the demands for cash by borrowing more funds from the Bank of Greece.  

With banks’ liquidity buffers close to being exhausted, access to additional ELA restricted 
and deposit outflows not abating, the Greek authorities were forced to take extraordinary 
measures to protect bank liquidity. During December 2014 to June 2015, households and 
businesses  withdrew  EUR  43  bln  from  banks  (nearly  a  quarter  of  the  total  deposits). 
According to the Bank of Greece, about a third of Greece’s deposit outflows were effected 
through the withdrawal of banknotes (for hoarding cash “under the mattress”); one third 
was  transferred  to  banks  abroad;  and  one  third  was  invested  in  foreign  money  market 
instruments47. 

As banks almost ran out of cash, the Greek government imposed sweeping capital controls 
on 28 June 2015 and introduced a bank holiday period to stem deposit outflows. On 18 
July 2015 a new legislative act was passed, with which the bank holiday period ended and 
banks re-opened. However, certain restrictions on cash withdrawals and transfers of funds 
remained.  Capital  controls  were  gradually  relaxed  in  line  with  a  conditions-based 
roadmap48, but were fully lifted only on 1 September 2019.  

Box 3.4  Main elements of the capital controls introduced in 2015 

 

 

Early loan repayments allowed only if made through transfer from abroad or in 
cash. 
Early redemption of time deposits allowed only under specific circumstances. 

42 Since 2010, GGBs were classified as junk by all the major rating agencies. As a result, 
they  were  ineligible  as  collateral  for  ECB’s  refinancing  operations.  However,  in  order  to 
ensure the proper operation of the Greek financial system, the ECB introduced a waiver to 
allow banks to use GGBs as collateral as long as Greece complied with the conditions of an 
EU-IMF financing programme.  
43 The waiver was later re-instated in June 2016, thus allowing Greek banks to access ECB’s 
regular  open-market  operations,  thereby  reducing  their  dependence  on  the  emergency 
liquidity 
lifeline. 
https://www.ecb.europa.eu/press/pr/date/2016/html/pr160622_1.en.html 
44 https://www.ecb.europa.eu/press/pr/date/2015/html/pr150204.en.html  
45  Speech  by  Bank  of  Greece  Deputy  Governor  John  (Iannis)  Mourmouras  in  Oxford 
entitled:  “On  Emergency  Liquidity  Assistance:  theory  and  evidence”,  27  June  2017. 
Available 
https://www.bankofgreece.gr/en/news-and-media/press-office/news-
list/news?announcement=c91acffb-3322-4472-82a0-90d17fc17cce  
46 On 26 June 2015, the Syriza government announced its decision to hold a referendum 
on  5  July  2015  on  the  bailout  terms  put  forward  by  its  international  creditors  .  As  the 
announcement of the referendum created a huge amount of uncertainty about the future 
of Greece within the euro area, the ECB could no longer justify increasing its exposure to 
Greece 
47 Speech by Bank of Greece Deputy Governor John (Iannis) Mourmouras dated 27 June 
2017, op cit 
48 In May 2017, the authorities published a conditions-based roadmap for the liberalization 
of capital flow management measures (CFMs) 

at: 

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 

EUR 60 daily limit on cash withdrawals and a cumulative EUR 420 weekly limit 
per depositor  

  New accounts/ customer IDs only permitted in certain cases for selected groups 

 
 

 

of individuals and companies. 
Transfers abroad for general purposes not permitted (some exceptions applied) 
Individuals' physical transfer of funds abroad not permitted (some exceptions 
applied) 
Business transfer for normal business activity of funds abroad subject to 
approval of the Bank Transactions Approval Committee. 

Source: IMF Country Report No. 18/248 

3.2.1.2 

Effectiveness of the measures taken to maintain liquidity and 
confidence 

Following the imposition of capital controls, the deposits in the banking system stabilised. 
Banks’ deposit bases stabilised in the third quarter of 2015 and even increased by EUR 1.7 
bln in the fourth quarter of 2015, as depositor confidence started to gradually return after 
the  completion  of  the  third  round  of  recapitalisation  in  December.  The  level  of  deposits 
however, fluctuated during the next 18 months:  

  During  the  first  quarter  of  2016,  deposits  dropped  once  again  due  to  uncertainty 
about  of  the  completion  of  the  first  review  of  the  Third  Economic  Adjustment 
Programme and specifically, issues relating to social security reform and additional 
fiscal measures;  

  Private  deposits  grew  by  EUR  5.8  bln  in  the  remainder  of  the  year  following 
completion of the first review and the approval of the second tranche of EUR 10.3 
bln by the Board of Directors of the ESM on 17 June 2016; and the ECB’s decision 
to reinstate the waiver for GGBs on 22 June 2016; 

  Deposits declined again in first quarter of 2017 as a result of uncertainty regarding 
the achievement of an agreement between the institutions and the Greek authorities 
on key reforms.  

From  the  second  quarter  of  2017,  private  deposits  have  been  trending  up,  though  they 
remain below 2014 levels – Error! Reference source not found.. 

Rising private deposits and access to interbank funding enabled banks to fully repay ELA 
in  March  2019.  From  June  2016  onwards,  both  overall  reliance  on  the  Eurosystem  and 
reliance on ELA continued to decline. This was due to an increase in banks’ deposit base 
and an expansion in liquidity sources (use of banks’ assets that are not eligible as collateral 
in  the  Eurosystem  monetary  policy  operations,  for  interbank  repos.  Access  to  financing 
through interbank repos has been on the rise since September 2015, but banks’ ability to 
raise unsecured interbank funding remains limited, due the thinness of the market, and 
sensitivity to macroeconomic developments.  

Greek banks regained access to the capital markets, but it remains difficult. In 2016, the 
National Bank of Greece raised around EUR 300 mln through a securitization transaction 
of corporate loans, while Eurobank issued two covered bonds of EUR 975 mln and EUR 1.2 
bln  respectively49.In  2019,  two  systemic  banks  placed  10-year  subordinated  bonds  in 
June/July,  although  at  relatively  high  cost  (yields  of  9.75  and  8.25  percent)50.    More 
recently, Alpha Bank successfully issued a EUR 500mn Tier II bond on 7 February 2020, 
followed by a EUR 500 mln Tier II bond issuance by Piraeus Bank on 12 February 2020.  

Eurosystem funding (particularly ELA) and the imposition of capital controls in 2015 played 
a key role in providing liquidity, restoring confidence and maintaining stability. It is evident 
from the analysis presented above that in absence  of access to markets and faced with 

49 Bank of Greece, 2017. Overview of the Greek financial system. 
50 IMF Country Report No. 19/340 

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significant  and  sustained  deposit  outflows  over  the  period  2010-2015,  access  to 
Eurosystem funding was critical for the survival of the banking system. 

Similarly, capital controls appear to have been necessary in 2015 to stem deposit outflows 
and restore stability. Both the Delphi panel of experts and key informants/ stakeholders 
interviewed, also highlighted the importance of ELA funding and the 2015 capital controls 
in  addressing  the  liquidity  needs  of  the  Greek  banking  sector.  Some  stakeholders 
expressed the view that the collateral framework for the ECB’s refinancing operations was 
too rigid and prohibitive, effectively pushing the Greek banks to the more expensive ELA. 
These  stakeholders  argued  that  the  collateral  framework  for  the  ECB’s  refinancing 
operations could have been more relaxed. 

Figure 3.7 

Delphi survey - How effective were the following measures in addressing 
the liquidity needs of the Greek banks? 

Source: ICF Delphi Survey, N=30 

Although deemed necessary and effective, some stakeholders questioned whether capital 
controls  were  justified  over  a  prolonged  period.  While  one  stakeholder  suggested  that 
capital  controls  could  have  even  been  introduced  earlier  with  the  benefit  of  hindsight, 
another stakeholder expressed the view that the ECB should have been more aggressive 
in relaxing capital controls. According to them, capital controls were understandable in the 
phase  where  Grexit  was  a  threat,  but  not  justified  after  the  third  programme  had  been 
agreed and the “Grexit threat” had dissipated as the ECB should have acted as a backstop 
to ensure sufficient liquidity in the system. In this context, this stakeholder explained that 
the timetable set for ELA payment was too aggressive. There was a trade-off between ELA 
repayment and relaxation of capital controls. Banks’ liquidity buffers were shrinking due to 
the pressure to repay ELA as a result of which the Greek Government had to be cautious 
in relaxing capital controls. A more relaxed position on the repayment of ELA could possibly 
have enabled an earlier relaxation of capital controls.  On the other hand, the presence of 
the ELA suggested that the Greek banks were not self-sufficient in terms of liquidity and 
that  their  liquidity  profile  was  rather  fragile.  This  was  also  evident  by  their  high  cost  of 
unsecured funding and the limited return of deposits, despite an acceleration in 2019. In 
such a context, there  would have been a degree of risk for authorities to lift the capital 
controls before the ELA was fully repaid. In addition, the repayment of the ELA was driven 
to a certain extent by the need for banks to reduce the cost of their short-term funding. 

3.3  Solvency of the Greek financial sector  

The following section addresses the study question 3a:  

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Study on "The financial sector in Greece during the economic adjustment programmes: 
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Question 3a: What were the main reasons for the significant capital losses of Greek 
banks? What was the impact of the Private Sector Involvement (PSI) on the Greek 
financial sector and banks in particular? 

While there were a number of factors that resulted in capital losses for the Greek banks 
(see Section 3.3.1), this section  focuses primarily on the impact of the PSI. It considers 
the following aspects: 

  Design of the PSI; 

  Exposure of Greek banks to the Greek Government Bonds (GGBs) prior to the PSI; 

  Ability to estimate the direct financial losses resulting from the PSI; 

  The size of the financial losses resulting from the PSI;  

  The timing of the PSI;  

  Immediate and medium to long run PSI effect on confidence. 

Apart from banks, this section considers also the direct impact of the PSI on the insurance 
and pension funds separately.     

3.3.1  Main reasons for the significant capital losses of the Greek banking sector  

When  examining  the  key  reasons  for  significant  capital  losses  of  Greek  banks,  the 
literature51 distinguishes between phases of the crisis but typically points to the following 
factors: 

  Impairment of the assets side of the banks’ balance sheet because of NPLs (see also 
Section  3.4),  sovereign  downgrades  reducing  the  value  of  GGBs  and  the  banks’ 
exposure to sovereign debt subjected to a haircut (linked to the PSI); and, 

  Grexit  and  related  currency  redenomination  fears  that  led  to  deposit  and  funding 

outflows. 

The literature review, supplemented by a review of the sample of annual financial reports 
of  the  four  largest  Greek  banks52  published  between  2010-2018,  reveals  a  set  of  other 
specific factors that drove down the profitability of banks (despite their major restructuring 
efforts to reduce the operational costs from 2010):  

  Negative contribution of international operations of some banks, in particular in the 
South  East  Europe  (SEE)  region  also  affected  by  the  crisis,  e.g.  in  2010,  Piraeus 
Bank and NBG were exposed to nine and six foreign countries, respectively, and – 
in most - bore the costs of deterioration in real economies, as well as higher forex 
risks;  

  Increase in cost of funding, e.g. due to loans’ re-pricing, increased costs of deposits 
and lost access to unsecured and secured funding that had to be replaced by more 
expensive funding from the Eurosystem;   

  Asset  devaluation  beyond  the  loan  portfolio,  e.g.  via  the  impact  of  struggling 

subsidiary businesses of some banks, including insurance subsidiaries; 

  Overall fall in volume of transactions,  e.g.  consumer and business loans, coupled 
with a drop in fees and commissions due to imposition of bank holiday and capital 
controls in 2015, among others. 

IMF, 

2017. 

51 
https://www.imf.org/en/Publications/CR/Issues/2017/02/07/Greece-Ex-Post-Evaluation-
of-Exceptional-Access-Under-the-2012-Extended-Arrangement-Press-44636 
52 Alpha Bank, Eurobank, NGB, Piraeus Bank. 

programme.  Available 

evaluation 

Ex-post 

EEF 

of 

at: 

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Generally,  however,  although  challenging  to  assign  relative  weights  to  each  of  these 
factors, it seems safe to infer that the impact of the PSI on banks’ capital position was one 
of the most significant. This is particularly relevant for 2011, when PSI-related losses were 
recognised in banks’ financial statements. 0 shows that for some banks, PSI losses reported 
in that year were in excess of cumulative credit losses that in turn captured the effects of 
the protracted recession – underpinning the systematic erasure of banks’ capital positions.   

3.3.1.1  Design of the PSI 

The plan for the PSI was officially announced at the EU Summit in July 2011. However, the 
Greek authorities had been assessing various options of debt restructuring since summer 
2010, while President Sarkozy and Chancellor Merkel’s call for a permanent crisis resolution 
mechanism in Europe that ‘…would comprise the necessary arrangements for an adequate 
participation of the private sector’ (made at the trilateral Franco-German-Russian Summit 
in  Deauville  in  October  201053)  was  widely  interpreted  as  an  official  signal  that  debt 
restructuring would be acceptable in European Union (EU) countries54. 

On 6 June 2011, German Finance Minister, Wolfgang Schäuble, wrote a letter to the ECB 
and IMF proposing ‘to initiate the process of involving holders of Greek bonds … through a 
bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven 
years’55.  Shortly  afterwards,  a  group  of  major  French  banks  issued  the  first  detailed 
proposal on what a Greek bond rescheduling might look like56. 

The  Euro  Summit  statement  in  July  2011  declared  the  financial  sector  bondholders’ 
willingness  to  support  Greece  on  a  voluntary  basis  in  order  to  strengthen  the  overall 
sustainability of the Greek public debt. According to the (broad) proposal discussed during 
the Summit, the targeted net contribution of the private sector through PSI would have 
been  around  EUR  37  bln.  Following  deteriorating  growth  projections,  the  October  2011 
Euro Summit statement acknowledged, however, that a deeper PSI would be needed. All 
types  of  private  holders  of  Greek  public  bonds  were  therefore  called  to  participate  in  a 
voluntary bond exchange at a nominal discount of 50 per cent in notional Greek debt. The 
Euro  area  Member  States  were  expected  to  contribute  up  to  EUR  30  bln  to  the  PSI 
package57.  

The Euro Summit in October 2011 set the stage for a new round of negotiations between 
the Greek government and creditors later that month. The negotiations on behalf of the 
bondholders (including major banks and other institutional investors, such as hedge funds 
and insurers) were led by the International Institute of Finance (IIF), while the Ministry of 
Finance and the Public Debt Management Agency represented the Greek government. All 
three  institutions  were  kept  in  the  information  loop  but  had  no  formal  role.  Their  initial 

debt 

Greek 

exchange: 

53 Bank of Greece, 2013. The Chronicles of the Great Crisis. Bank of Greece: 2008-2013. 
Available 
at: 
https://www.bankofgreece.gr/Publications/Selections%20from%20The%20Chronicle%20
of%20the%20great%20crisis%20-%20the%20Bank%20of%20Greece%202008-
2013.pdf  
54 
The 
https://pdfs.semanticscholar.org/ff71/592f6a85a4bbb7c34c013e34c8f7fb1b2725.pdf 
55 PIIE, 2011. What’s behind the squabble over a new aid package for Greece? Available 
at: https://www.piie.com/blogs/realtime-economic-issues-watch/whats-behind-squabble-
over-new-aid-package-greece?p=2203  
56  CEPS,  2011.  An  evaluation  of  the  French  proposal  for  a  restructuring  of  Greek  debt. 
Available 
http://wp.ceps.eu/wp-
content/uploads/2011/07/No%20247%20Kopf%20on%20France's%20proposal%20for%
20restructuring%20Greek%20debt.pdf 
57  Bank  of  Greece,  2012.  Report  on  the  recapitalisation  and  restructuring  of  the  Greek 
banking 
at: 
http://www.fiskalpakt.info/up/doclist/Report_on_the_recapitalisation_and_restructuring.
pdf 

Available 

Available 

autopsy. 

sector. 

at: 

at: 

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views of the move differed, with the ECB sceptical about any possibility of a haircut, given 
the potential significant impact on the financial stability of the Euro area. 

The deal between Greece and the representatives of the steering group (12 banks, insurers 
and asset managers, on behalf of bondholders) was agreed on 21 February 2012, with the 
formal offer made  on 24 February 2012, following approval by the Ministerial Council of 
the  Hellenic  Republic.  This  offer  looked  very  different  from  the  initial  proposal  by  the 
bondholders during the EU Summit in July 2011, entailing a deeper haircut and broader 
scope58. The minimum participation threshold set by the three institutions and the Greek 
authorities was 90 per cent of the total eligible debt, and Greece gave creditors two weeks 
(until 8 March) to accept or reject the offer. On 9 March, the Greek government announced 
that 82.5 per cent of the EUR 177.3 bln in sovereign bonds issued under domestic law had 
accepted the exchange offer while the participation deadline for foreign law bondholders 
was extended till early April. The bonds started trading on 12 March59. 0 summarises the 
final form of the PSI. 

Box 3.5  Overview of the Private Sector Involvement (PSI)  

Participation  in  the  proposed  Greek  bonds  swap  was  voluntary60  and  covered  private 
sector holders (domestic and foreign law) whose holding stood finally at EUR 199.2 bln 
(out of EUR 205.5 bln eligible) of the outstanding face amount of Greek bonds (excluding 
t-bills61) issued before February 2012, or 96.9 per cent participation. The ECB, Greece’s 
single largest bondholder by far with EUR 42.7 bln (16.3 per cent) of holdings in February 
2012 – along with the national central banks and the EIB were excluded from the PSI. 

The terms of the PSI included: 

  Existing Greek bonds were exchanged  for new bonds (under English, rather than 
Greek law) issued by the Hellenic Republic. These had a face value equal to 31.5 
per  cent  of  the  face  value  of  the  old  bonds.  In  addition,  creditors  received  EFSF 
notes maturing within 24 months or less from the PSI settlement date, which had 
a face value of 15 per cent of the face value of the old bonds; 

  New bonds had a 2.0 per cent coupon per annum for payment dates in 2013 - 2015, 
a 3.0 per cent annual coupon for payment dates in 2016 - 2020, a 3.65 per cent 
annual  coupon  in  2021,  and  a  4.3  per  cent  per  annum  for  payment  dates  from 
2022.  Fixed  interest  on  EFSF  notes  accrued  from  12  March  2012  and  was 
determined  on  the  issue  date.  Similar  to  bonds,  the  notes  were  also  subject  to 
English law; 

  Holders also received detachable GDP-linked securities62 of the Hellenic Republic. 

Source: Ministry of Finance, press Beyond Austerity – Reforming the Greek Economy; Munevar, 
D. (2017). Greece: The PSI and the process of bank recapitalisation.release, 24 February 2012; 
Ministry of Finance, press release, 9 March 2012; MIT (2016).  

As  a  result  of  the  PSI,  Greece  became  the  first  Organisation  for  Economic  Co-operation 
and Development (OECD) member country to default on its sovereign debt, a default that 

debt 

autopsy. 

exchange: 

58  For  more  details  and  the  comparison  of  these  offers,  see  Zettelmeyer,  J.,  2013.  The 
Greek 
at: 
an 
https://pdfs.semanticscholar.org/ff71/592f6a85a4bbb7c34c013e34c8f7fb1b2725.pdf 
59  Zettelmeyer,  J.  2013.  The  Greek  debt  exchange:  an  autopsy.  Available  at: 
https://pdfs.semanticscholar.org/ff71/592f6a85a4bbb7c34c013e34c8f7fb1b2725.pdf 
60 Unless bonds representing at least 90% of the aggregate face value of all bonds selected 
to  participate  in  the  PSI  programme  were  validly  tendered  for  exchange,  the  Republic 
would not have been required to settle any of the exchanges. 
61 Approximate outstanding value of EUR 16 billion as of January 2012. 
62 Annual payments beginning in 2015 of up to 1% of their notional amount in the event 
the Republic’s nominal GDP  exceeded a defined threshold and the Republic had positive 
GDP growth in real terms in excess of specified targets. 

Available 

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was  the  largest  in  history63.  Overall,  the  PSI  was  a  substantially  complex  exercise,  with 
core negotiations lasting from October 2011 to March 2012 and involving a considerable 
number  (and  type)  of  bondholders  from  various  jurisdictions.  The  negotiations  were 
conducted  in  exceptionally  challenging  circumstances  and  against  the  clock,  given  the 
imminent redemption of pre-PSI ‘old bonds’ on 20 March 2012, that Greece would have 
had to find the resources to meet64.  

The existing literature suggests that both the negotiations and execution of the PSI were 
relatively  successful,  despite  the  challenging  environment  and  sui  generis  and  complex 
character  of  the  exercise.  The  PSI  attracted  near-universal  participation,  surpassing  the 
targeted  improvement  in  debt  dynamics  under  the  programme65.  The  deep  and  orderly 
relief achieved by the PSI was no small feat, although critics argue that the design of the 
terms  could  have  been  better  for  the  Greek  treasury,  pointing  to  alternative  terms  that 
would have allowed greater debt reduction66.  

Most of the stakeholders interviewed believed that the design and execution of the PSI was 
successful, with some stating that a better outcome was unlikely under the circumstances. 
Several,  however,  pointed  out  that  excluding  some  types  of  public  bondholders,  in 
particular ECB, reduced the effectiveness of the PSI, a view also expressed by the IMF 67 
and  discussed  in  detail  in  the  literature68.  Some  argued  that  the  PSI  should  have  been 
implemented earlier (see detailed discussion under Section Error! Reference source not 
found.).   

The overall view of the Delphi respondents was similar, with 70 per cent of the respondents 
agreeing/strongly agreeing with the statement that the PSI was well designed. 

Figure 3.8 

Delphi survey - the extent to which you agree or disagree that the PSI was 
well designed 

Source: Delphi survey, N=30 

13, 

2012. 

Times, 

Financial 

September 

63 Gourinchas, P. et al., 2017. The analytics of the Greek crisis. 
64 
PSI 
https://ftalphaville.ft.com/2012/09/13/1157731/psi-lost/ 
65  IMF,  2012.  Request  for  the  extended  arrangement  under  EFF.  Available  at: 
https://www.imf.org/en/Publications/CR/Issues/2016/12/31/Greece-Request-for-
Extended-Arrangement-Under-the-Extended-Fund-Facility-Staff-Report-Staff-25781 
66  Zettelmeyer,  J.  2013.  The  Greek  debt  exchange:  an  autopsy.  Available  at: 
https://pdfs.semanticscholar.org/ff71/592f6a85a4bbb7c34c013e34c8f7fb1b2725.pdf 
67 IMF (2013). Greece: ex post evaluation of exceptional access under the 2012 extended 
arrangement. Country Report No. 17/44 
68 Allen & Overy, September 2012. How the Greek debt reorganisation of 2012 changed 
the rules of sovereign insolvency.   

Available 

lost. 

at: 

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2010-2018 

3.3.1.2 

Sovereign-banking feedback loop and the exposure of Greek banks to 
GGBs  

One  of  the  main  challenges  faced  by  policy  makers  was  Greek  banks’  high  direct  and 
indirect interlinkages with their sovereign. The ‘sovereign-banking feedback loop’ had two 
channels.  In  the  first,  the  sovereign’s  weakening  fiscal  situation  negatively  affected  the 
value of banks’ assets due to banks’ high exposure through direct GGBs’ holdings, at both 
intertemporal  and  cross-country  record  high  levels  (Figure  3.9).  Banks’  portfolio  values 
were also indirectly hit by the weakening worth of state guarantees backing several loans 
and deposits.  

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2010-2018 

Figure 3.9 

Stylised illustration of the sovereign-banking feedback loop 

Source: Wilkinson, C. 

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2010-2018 

Conversely, weakening banks had significant spill over effects on the Greek public finances. 
Firstly, because the state was obliged to recapitalise the banks on two69 distinct occasions 
within less than five years and increase its provision of guarantees, both measures of which 
incurred high fiscal costs. Secondly and not least importantly, because weakening banks’ 
balance  sheets  and  the  need  for  deleveraging  deepened  further  the  recession  through 
significant credit contraction, further slowing investment and weakening tax revenue70.  

The exposure of Greek banks to GGBs was already comparatively high before the financial 
crisis,  reaching  5.6  per  cent  of  the  total  banking  system  assets  in  Greece  in  May  2008 
(compared to 2.2 per cent for the Euro area and PIICS71 countries, Figure 3.10). This share 
not only increased from the end of 2008 to the execution of the PSI in early 2012 but the 
rate  of  that  increase  was  rather  high,  despite  the  contracting  economy  and  rapidly 
increasing country risk premium. The exposure of Greek banks to GGBs in December 2011 
was 9.4 per cent of the total banking assets – almost 70 per cent higher than in May 2008. 
It is worth to note, however, that Greek banks were not exceptional in this respect. The 
literature  shows72  that  other  banks  in  the  EU  including  Irish,  Spanish  and  Italian  ones 
reacted in a similar way.  

Figure 3.10  GGBs as a percentage of the total assets of the banking system 

Source: ECB SDW 

There is no single explanation for this ‘home bias’ of Greek banks. However, one that has 
been often cited in the literature73 and was also raised by number of interviewees including 
the  representatives  of  the  three  institutions,  some  Greek  stakeholders  and  interviewed 
representatives from the private sector/ non-governmental sector, was that Greek banks 
were pressured by the government to buy its bonds, with pressure increasing during the 
crisis, when the state faced greater difficulties in raising the necessary financing. According 

69 The second recapitalisation involved exclusively private financing.  
70 MIT, 2016. Beyond austerity – reforming Greece’s economy. 
71 Portugal, Ireland, Italy, Cyprus, Spain. 
72 Battisini, N. 2014. Systemic risk, sovereign yields and bank exposures in the euro area. 
Available 
https://academic.oup.com/economicpolicy/article-
abstract/29/78/203/2918380 
73  Halliasos,  M.,  Hardouvellis,  G.,  Tsousoura,  M.  and  Vayancos,  D.  2016.  Financial 
development and the credit cycle in Greece 

at: 

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to Haliassos et al.74, this explanation75 implies that domestic exposure should be larger for 
state-controlled banks than for privately controlled banks, as the state has more leverage 
over the former. The data support this assertion: holdings of GGBs and other loans to the 
Greek  state  were  303  per  cent  of  capital  for  the  aggregate  of  state-controlled  banks 
(National  Bank  of  Greece,  ATE  Bank,  Postbank)  and  171  per  cent  for  the  aggregate  of 
privately  controlled  banks  (Eurobank,  Alpha  Bank,  Piraeus,  Emporiki  MIllenium,  Geniki, 
Attica, Probank , Proton, FBB, Panellinia).  

In hindsight, however, it seems that the possibility of Greek banks to reduce their exposure 
to  GGBs  was  also  constrained.  While  one  interviewee  noticed  that  in case  of  Grexit  and 
currency  redenomination  (return  of  drachma)  banks  would  have  been  hedged  ‘to  some 
extent’  as  apart  from  their  assets  their  liabilities  would  have  been  redenominated  too, 
several other interviewees (e.g. EC and BoG) stressed the causality between the solvency 
of the state and the solvency of the banks. Banks, facing the risk of state default  - with 
shockwave implications for the real economy as well as their existing capital positions (e.g. 
recession  impact  and  the  direct  hit  due  to  the  state’s  default  on  their  GGBs)  -  had  an 
implicit  interest  in  sustaining  fiscal  stability  for  as  long  as  possible.  Without  a  doubt, 
government pressure must have played a role, even though banks were also deriving profit 
on spreads of its GGBs holding. 

One  of  the  tools  that  might  have  allowed  a  sizable  reduction  in  the  exposure  of  Greek 
banks to GGBs was the ECB Securities Market Programme (SMP), a sovereign bond buying 
operation launched by the ECB on 9 May 2010 and maintained until September 2012. The 
SMP focused  on purchasing Irish, Portuguese,  Spanish and Greek debt76 to alleviate the 
pressure from distressed sovereign bond markets and contain the risk of spillover to other 
banking systems in 2010. 

Publicly available data on the evolution of the holding of Greek debt disaggregated by type 
of  creditor  is  scarce  and  incomplete.  Figure  3.11  shows  this  evolution,  albeit  only  until 
March  2011.  In  essence,  exposure  of  the  Greek  banks  was  on  the  rise  from  mid-2009, 
while that of foreign banks was declining. The exposure of the EA, the IMF and the ECB 
(included under ‘other foreign entities’) also increased. 

Figure 3.11  Holding of Greek government debt, December 2007-March 2011 

Source: Commission services 

74  Halliasos,  M.,  Hardouvellis,  G.,  Tsousoura,  M.  and  Vayancos,  D.  2016.  Financial 
development and the credit cycle in Greece.  
75 Consistent Moody’s view that governments are typically quite effective in encouraging 
domestic banks to retain domestic bonds.  
76 
2010. 
https://www.ecb.europa.eu/pub/pdf/other/mb201006_focus01.en.pdf  

Available 

Monthly 

Bulletin 

June. 

ECB, 

at: 

- 

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2010-2018 

Note: ‘other foreign entities’ includes the ECB 

Anecdotal evidence shared by the interviewees that corroborate with evidence found in the 
literature77  suggests  that  most  of  the  Greek  debt  offloaded  via  the  SMP  was  owned  by 
foreign (primarily French and German) banks rather than Greek banks. The ECB, however, 
has not published the data on the volume of purchased GGBs, the origin of sellers and the 
timing  and  specific  amounts  that  main  type  of  creditors  offloaded  via  the  SMP  since  its 
inception in May 201078. Therefore, it is not possible to specify with high degree of precision 
the  amount  of  debt  offloaded  by  Greek  versus  foreign  banks  between  May  2010  and 
September 2012 when the SMP was active.It is understood, however, that some 75 per 
cent of the GGBs offloaded by banks via SMP was done in its initial phase, between May 
and July 2010, with the total amount of bond purchases in that period around EUR 35 bln, 
a small proportion of which sold by Greek banks79,80. This then raises the question of why 
Greek banks did not benefit from this opportunity, as other foreign banks sensibly did. One 
hypothesis (consistent with the proposition of Haliassos et mentioned earlier) offered by 
an interview with no association to the three institutions and Greek authorities and closely 
involved in the analysis of this issue was the government pressure exercised on banks. In 
short, the authorities were concerned about the potential rise in spreads on GGBs in case 
of the sell-off by Greek banks, and hence encouraged them to do not do so.   

More broadly, it is worth highlighting that one of the effects of the ECB purchases via SMP 
was a highly localized but substantial impact on the bonds’ yields81 for those categories of 
Greek  bonds  that  were  actually  purchased82.  In  addition,  the  ECB  lowered  collateral 
requirements for Greek banks on 5 May 2010 so that all GGBs held would still qualify for 
its  purchase  programme  despite  falling  below  the  investment  grade  -  a  considerable 
support  for  the  state  and  for  Greek  banks.  Given  the  ECB’s  objective  to  contain  the 
contagion  risk  in  domestic  and  international  banking  systems  in  2010,  allowing  banks 
(including French and German) to offload GGBs from their balance sheet appears logical. 

3.3.1.3  Estimated and actual direct impact of the PSI on Greek banks 

Gauging the direct impact of the PSI on capital base of Greek banks was a straightforward 
exercise, albeit only once its details were pinned down, and the process took some time. 
Conceptually, the impact of the PSI can be derived as the function of the product of the 
size of the GGBs held by a bank and the effective haircut ratio. Experts from the EC who 
were directly involved in the exercise perceived it as relatively straightforward. 

However, while there was some crude understanding of the plausible ranges of the haircut 
as early as 2011, the effective hair-cut ratio was only fixed in February 2012 and so the 
exact impact of the PSI could not be known until then only. For that reason, the European 
Commission  had  therefore  conducted  the  sensitivity  analysis  based  on  the  range  of 
potential PSI options. 

per 

year. 

Available 

77 Trebesch, C. and Zettelmeyer, J., 2016. ECB interventions in distressed sovereign debt 
market: the case of Greek bonds. 
78  The  only  available  data  are  the  aggregate  figures  published  by  the  ECB,  including  a 
at: 
breakdown 
https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html 
79 Trebesch, C. and Zettelmeyer, J., 2016. ECB interventions in distressed sovereign debt 
market: the case of Greek bonds.  
80 The ECB only bought a subset of 31 out of the 81 Greek bonds outstanding via SMP and 
it  favoured  large  benchmark  bonds  with  a  maturity  of  less  than  10  years,  and  with 
comparatively high yields. 
81 A drop between 70-170 bps for bonds purchased during the eight weeks following the 
start of the SMP on 10 May 2010. 
82  IMF, 2016.  ECB interventions in distressed  sovereign debt  market: the  case  of  Greek 
bonds. 
at: 
https://www.imf.org/external/np/res/seminars/2016/arc/pdf/Trebesch_Zettelmeyer_Ses
sion1.pdf 

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Generally, the staff interviewed from the EC, ESM and BoG perceived the estimation of the 
impact  of  the  PSI  on  Greek  banks  as  far  less  challenging  compared  to  modelling  other 
impacts, such as potential losses of the loan portfolios due to recession, effective recovery 
rate of the collateral held by banks, or the impact of some major legislative acts such as 
the Katseli Law (2010). The sensitivity analysis did not appear to include assumptions on 
the potential secondary impact of the PSI on confidence (see Section 3.3.1.3). 

Once implemented, the PSI had several positive effects on public debt: 

  Nominal value of the Greek debt was reduced by EUR 107 bln (from an eligible PSI 
base of EUR 205.5 bln) corresponding to a hair-cut of the eligible PSI base by 53.5 
per cent, or nearly 50 per cent of Greek GDP at the time of the swap83;  

  Structure of the public debt changed, as the  share  of public creditors in the total 
stock  rose  from  35  per  cent  to  over  50  per  cent  alleviating  some  short-term 
pressures  stemming  from  the  difference  in  maturities  between  private  and  public 
creditors’ holdings. In addition, the shift from private to official creditors came with 
much better terms, namely below market rates and long maturities. Overall, the PSI 
corresponded to the 29 per cent reduction of public debt as of end-2011 (a reduction 
in debt of EUR 10,000 per Greek citizen)84. 

At the same time, given the exposure to the GGBs, Greek banks experienced total losses 
of EUR 37.7 bln in their holdings of bonds (of which EUR 28.2 bln was held by four systemic 
banks)  and  other  loans  to  the  Greek  state.  This  represented  10  per  cent  of  their  total 
assets,  or  170  per  cent  of  their  total  Core  Tier  I  capital  at  that  time,  while  the  banks’ 
provisions  set  aside  for  PSI-related  losses  were  only  EUR  5.8  billion,  according  to  their 
2011 financial statements. Banks net-of-provision losses from Greece’s sovereign default 
were  EUR  31.9  bln  wiping  out  their  capital  base  and  leaving  some  of  the  largest  banks 
insolvent and others seriously undercapitalised. In addition, PSI accounted (indirectly) for 
some  of  the  projected  losses  on  the  banks’  private  sector  loan  portfolios  due  to  its 
recessionary impact85. As a result of the PSI, the first recapitalisation was needed (more 
on recapitalisations under Section Error! Reference source not found.). 

0 illustrates banks’ capital needs, including direct impact of the PSI86. 

83 Some research suggests that by offering the same package of ‘new bonds’ regardless of 
the differences in the maturity of ‘old bonds’, the average haircut level may have differed 
and resulted in substantial differences in distribution of losses, depending on the maturity 
of the ‘old bonds’. See, for instance, Zettelmeyer, J., 2013. The Greek debt exchange: an 
autopsy. 
at: 
https://pdfs.semanticscholar.org/ff71/592f6a85a4bbb7c34c013e34c8f7fb1b2725.pdf  
84  IMF,  2015.  Blog:  Greece  -  past  critique  and  the  path  forward.  Available  at: 
https://blogs.imf.org/2015/07/09/greece-past-critiques-and-the-path-forward/ 
85 Reduced capacity of banks to lend. 
86  Halliasos,  M.,  Hardouvellis,  G.,  Tsousoura,  M.  and  Vayancos,  D.  (2016).  Financial 
development and the credit cycle in Greece. 

Available 

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Table 3.1  Capital needs of banks, including direct impact of the PSI on the capital base of the Greek banks, in EUR bln 

CET1 capital 
12/2011 

PSI loss 

Provisions 
for PSI, 
06/2011 

Credit loss 
projections 

Loan loss 
reserves, 
06/2011 

Capital 
generation 

Target CET1 
capital, 
12/2014 

Capital 
needs 

7.29 

3.52 

4.53 

2.62 

1.46 

0.38 

0.56 

0.47 

0.37 

0.37 

0.28 

0.06 

0.15 

0.08 

-11.74 

-5.78 

-4.79 

-5.91 

-0.59 

-4.33 

-3.44 

-0.14 

-0.29 

0.14 

-0.3 

-0.22 

-0.05 

-0.03 

1.65 

0.83 

0.67 

1.01 

0.07 

0.84 

0.57 

0.00 

0.07 

0.05 

0.06 

0.05 

0.00 

0.00 

-8.37 

-8.23 

-8.49 

-6.28 

-6.35 

-3.38 

-1.48 

-0.64 

-1.55 

-0.71 

-0.46 

-0.48 

-0.29 

-0.12 

5.39 

3.51 

3.12 

2.57 

3.97 

2.34 

1.28 

0.21 

1.31 

0.27 

0.17 

0.37 

0.17 

0.05 

4.68 

2.90 

2.43 

1.08 

0.11 

0.47 

-0.32 

-0.08 

-0.04 

0.02 

0.15 

0.03 

-0.03 

-0.03 

8.66 

2.60 

2.03 

2.41 

1.15 

1.23 

0.90 

0.23 

0.15 

0.25 

0.18 

0.12 

0.12 

0.04 

9.76 

5.84 

4.57 

7.34 

2.48 

4.92 

3.74 

0.40 

0.28 

0.40 

0.28 

0.31 

0.17 

0.08 

22.12 

-37.73 

5.86 

-46.83 

24.73 

11.38 

20.06 

40.54 

NBG 

Eurobank 

Alpha 

Piraeus 

Emporiki 

ATEbank 

Postbank 

Millennium 

Geniki 

Attica 

Probank 

New Proton 

FBB 

Panellinia 

Total 

Source: Data from Table 1.1 of the BoG report on the recapitalisation and restructuring of the Greek banking sector (December 2012)/ Halliasos, M., 
Hardouvellis, G., Tsousoura, M. and Vayancos, D. (2016). Financial development and the credit cycle in Greece. 

Note: For each row the quantities in the first seven columns add up to aggregate capital needs presented in the last column. The first seven columns illustrate 
the following quantities: (i) Core Equity Tier 1 capital as of December 2011, (ii) losses on GGBs and other loans to the Greek state during the PSI, (iii) 
provisions that banks set aside to meet these losses, (iv) projected losses in private sector loans, (v) provisions that banks set aside to meet these losses, 
(vi) projected addition to capital due to earnings during the period 2012 to 2014, (vii) target Core Equity 1 capital as of December 2014.  

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In  addition,  solvency  problems  generated  liquidity  problems.  Banks  faced  difficulties 
financing themselves in both the interbank market and the market for retail deposits, as 
the  guarantee  by  the  government  lost  its  value.  The  solvency  and  liquidity  problem 
reflected the state-to-bank spillover channels  of the sovereign-banking loop87. Following 
the PSI, banks’ ability to extend new credit was severely constrained88. 

3.3.1.4  Immediate and medium/long-term effect of the PSI on market 

confidence 

The analysis of the effect of the PSI on market confidence is inherently challenging, given 
the range of potential shaping factors. It is also true that debt-restructuring without any 
impact  on  confidence  is  an  oxymoron.  However  well  designed  and  executed,  erosion  of 
confidence is an unavoidable offshoot of every debt restructuring operation. Nevertheless, 
several possible indicators and data sources may offer some insights: 

  Experts’  views  fleshing  out  the  factors  other  than  the  PSI  that  had  a  meaningful 
impact on market confidence at the time the PSI was negotiated and implemented;  

  Selected data that may capture market responses to the PSI, including the Economic 

Uncertainty Index (EUI) and data on deposit outflows; 

  Moody’s communications, including relevant sector comments and ratings decisions 
between 2010 and 2013, focusing on references to the PSI’s impact on the Greek 
banking/financial sector. 

The period from mid-2011 was marked by speculation about a potential Greek exit from 
the Euro area and a gradual deterioration of the macroeconomic environment that, in turn, 
impacted on the general confidence level in the market.  The  IMF growth projections for 
Greece  were  revised  downwards  and  achievement  of  the  quantitative  targets  set  in  the 
first EAP became gradually less certain.  

In  addition,  the  period  between  mid-2011  and  mid-2012  brought  increased  political 
uncertainty. The PASOK government resignation in November 2011 led to the formation of 
an interim technocratic government with a short-term mandate to  execute the PSI.  The 
risk  of  overturning  the  adjustment  programmes  loomed,  as  did  the  prospect  of  a  snap 
election, which eventually took place in May and June 2012. All of these negatively affected 
market sentiment along any potential effects of the PSI. 

Aggregate deposits did indeed drop by EUR 32.7 bln between October 2011 and June 2012 
when the second elections took place, while the EUI shot up the opposite direction from 
mid-2011, before reversing sharply following the outcome of June 2012 election (Figure 
3.12). Once the election was over, the bond market improved rapidly, although the IMF 
attributed the higher and more volatile spreads in late 2011-early 201289 to the uncertainty 
related to the details of the PSI, while market  reaction to the successful exchange offer 
concluded on 8 March 2012 was ‘muted’ according to the IMF90 – note that a drop in yields 
on March 8th shown in Figure 3.13 was associated mostly with the swap of old bonds into 
new  ones  that  were  of  different  features.  These  distinct  changes  in  trends  -  coinciding 
neatly  with  the  elections  -  suggest  the  importance  of  the  political  cycle,  but  without 
negating some effects of the PSI.  

87  Halliasos,  M.,  Hardouvellis,  G.,  Tsousoura,  M.  and  Vayancos,  D.,  2016.  Financial 
development and the credit cycle in Greece. 
88  ESM  (2020).  Restoring  growth  and  financial  stability:  how  Greek  banks  responded. 
Available  at:  https://www.esm.europa.eu/publications/restoring-growth-and-financial-
stability-how-greek-banks-contributed 
89 10-year bond spreads exceeded 3,200 bps in February 2012. 
90  IMF  (2012).  Request  for  the  extended  arrangement  under  EFF.  Available  at: 
https://www.imf.org/en/Publications/CR/Issues/2016/12/31/Greece-Request-for-
Extended-Arrangement-Under-the-Extended-Fund-Facility-Staff-Report-Staff-25781 

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Figure 3.12 

 Domestic residents’ deposits and EUI, Jan 2008-Jan 2017 

Source: BoG and Hardouvelis (2017). 

Figure 3.13  Yields – 10-year government bonds, in bps, January 2010- January 2015 

Source: BoG  

While one stakeholder from the European Commission highlighted the fear and subsequent 
deposit flights as a consequence of the PSI – admitting that, in hindsight, the implication 
of  the  debt  restructuring  had  not  been  fully  understood  and  anticipated  -  stakeholders 
representing the Greek banking sector, Greek Ministry of Finance, academia and the BoG 
pointed  unanimously  to  political  uncertainty  as  the  principal  factor  for  the  drop  in 
confidence between mid-2011 and mid-2012. 

Another  source  of  evidence  that  sheds  some  light  on  the  effect  of  the  PSI  on  market 
confidence and its impact on Greek banks is the credit ratings issued by the main agencies. 
The study team analysed the evolution of the credit ratings of the four largest Greek banks 
(Eurobank, NBG, Piraeus, Alfa Bank), corresponding to some 75 per cent of banking system 
assets at that time, including the interdependence of banks’ rating on the Greek sovereign 
rating  (Figure  3.14).  The  team  also  reviewed  the  underlying  Moody’s  communications, 
focusing on specific references to PSI/debt-restructuring (see Error! Reference source 
not found. for a summary of this review). 

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Figure 3.14  Evolution of the ratings of the Greek sovereign and four largest Greek 

banks, Moody’s  

Source: ICF adapted from Moody’s 

Box 3.6 

PSI and the Moody’s ratings 

From early 2011, the PSI started to feature in Moody’s rating announcements and sector 
comments. In its downgrade of four main banks announced in March 2011, the agency 
rationale  for  the  decision  noted  the  possibility  of  debt  restructuring,  although  it 
maintained  that its  central  scenario  was  that  holders  of  Greek  government  bonds  will 
not bear the losses. That stance evolved with the subsequent downgrade of the banks 
in June 2011, with Moody’s stating that the debt-restructuring was not ‘inevitable’91. One 
month  later,  however,  the  haircut  was  assessed  as  certain  (its  magnitude  was  still 
unclear) and the risk of further impairment of GGBs on banks’ capital base was one of 
the three92 main factors triggering another downgrade of the main banks in September 
201193. 

In  its  sector  comment  from  January  2012,  the  agency  had  not  yet  pinned  down  the 
plausible  level  of  haircut  and  contemplated  three  specific  outcomes:  (1)  50  per  cent 
haircut  on  GGBs,  (2)  60-70  per  cent  haircut  on  GGBs,  and  (3)  a  default  and  possible 
Euro-exit. Moody’s saw outcome 1 as most desirable, with the potential impact of each 
varying  substantially.  Nevertheless,  the  agency  hinted  that  ‘…there  is  widespread 
speculation that the final haircut could be higher than the 50 per cent initially envisaged’ 
and highlighted some negative implications, e.g. the amount of capital injected would 
need to be higher and the likelihood that HFSF would retain its significant stake in Greek 

91  Moody’s,  3  June  2011.  Moody’s  downgrades  ratings  of  Greek  banks  and  concludes 
review.  Available  at:  https://www.moodys.com/research/Moodys-downgrades-the-
ratings-of-Greek-banks-and-concludes-review--PR_220040  
92 Along with (2) the expected impact of the deteriorating domestic economic environment 
on  NPLs  and  potential  additional  provisioning  costs  from  the  upcoming  diagnostic  asset 
quality study, initiated by BoG and to be conducted by external consultants (BlackRock), 
(3)  declines  in  deposit  bases  and  still  fragile  liquidity  positions,  as  illustrated  by  limited 
remaining  eligible  collateral  for  funding  from  the  ECB  and  the  recent  activation  of 
Emergency Liquidity Assistance (ELA) by the BoG. 
93  Moody’s,  23  September  2011.  Moody’s  downgrades  the  ratings  of  Greek  banks, 
concluding 
at: 
25 
https://www.moodys.com/research/Moodys-downgrades-the-ratings-of-Greek-banks-
concluding-review-initiated--PR_226069  

Available 

initiated 

review 

2011. 

June 

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banks. Moody’s suggested that it might even remain the sole shareholder for a longer 
period of time that ‘…would make the banks less attractive for the private sector to invest 
in’. 

In its sector comment on 27 February 201294, Moody’s finally anticipated a 53.5 per cent 
haircut, corresponding to nominal losses of EUR 25 bln. This turned out to be correct, 
although the agency argued that capital needs of banks would still exceed this amount, 
given rising NPLs and restructured loans, and record high unemployment. Importantly, 
Moody’s  pointed  to  the  need  for  recapitalisation  (taking  place  as  soon  as  in  2012)  to 
safeguard  the  solvency  of  banks  and  argued  that  the  participation  of  existing  banks’ 
shareholders would be also necessary. 

In the sector comment published on 5 March 201295 (three days before the exchange 
deadline  for  domestic  creditors),  the  agency  stressed  that  the  ECB’s  temporary 
suspension of the eligibility of marketable debt instruments issued or fully guaranteed 
by Greece (C: no outlook) for use as collateral in Euro system monetary policy operations 
was partly driven by the launch of the PSI offer and highlighted that ‘…there is a certain 
level of implementation risk contingent on the private-sector involvement acceptance by 
bondholders,  which  raises  their  funding  risks’.  In  parallel,  Moody’s  highlighted  a 
worryingly  low  level  of  deposits  and  asserted  that  ‘…a  further  shock  to  depositor 
confidence could impair the banking system’s capacity to perform its intermediation role’ 
– demonstrating the critically important role of expectations at that point. 

Finally,  some  six  weeks  after  the  execution  of  the  PSI,  Moody’s  referred  to  HFSF’s 
commitment  of  funds  to  the  banks  (through  a  formal  assurance  letter)  as  a  ‘positive 
credit  development’  that  ensured  the  restoration  of  the  banks’  battered  solvency 
positions, even though banks continued to face significant risk96. 

When  it  comes  to  the  relationship  between  banks’  and  the  Greek  sovereign  rating,  the 
former  closely  trailed  the  latter.  This  was  because  of  banks’  material  exposure  to  GGBs 
and  the  possibility  of  lowering  the  Greek  sovereign  rating,  prompting  the  agency  to 
reassess the level of systemic support uplift (one of its ratings elements97). The same logic 
applies to the upgrades. Indeed, the first upgrade of the Greek sovereign rating since the 
beginning of the crisis - in November 2013 - was driven by ‘…a significant reduction of the 
government's  interest  burden  following  previous  restructurings  and  official  sector 
repayment assistance’, and was followed by upgrades of three of the four systemic banks. 

The  impact  of  the  PSI  on  credit  ratings  began  to  feature  in  Moody’s  ratings  from  early 
2011, although it was first assessed as ‘certain’ only in July 2011. The agency did not have 
clarity on its form and scope and continued to consider three widely different forms of debt 
restructuring as late as January 2012. In the short-term, either directly or indirectly (e.g. 
the PSI adding to the ECB’s decision on the temporary suspension of the eligibility of GGBs 
as collateral in Euro system monetary policy operations in March 2012), the PSI contributed 
to the subsequent downgrades of the main Greek banks throughout 2011. Yet that negative 

funding 

increase 

94 Moody’s, 27 February 2012. Larger haircut on Greek government bonds is credit negative 
for  Greek  banks.  Available  at:  https://www.moodys.com/research/Larger-Haircut-on-
Greek-Government-Bonds-Is-Credit-Negative-for--PBC_140153 
95  Moody’s,  5  March  2012.  Deposit  declines  and  ECB’s  suspension  of  Greek  bonds  as 
collateral 
at: 
https://www.moodys.com/research/Deposit-Declines-and-ECBs-Suspension-of-Greek-
Bonds-as-Collateral--PBC_140335 
96 Moody’s, 23 April 2012. HFSF’s capital commitment to Greek banks  is credit positive. 
Available  at:  https://www.moodys.com/research/HFSFs-Capital-Commitment-to-Greek-
Banks-Is-Credit-Positive--PBC_141603 
97 In the case of Moody’s ratings, a possible downgrade of the Greek sovereign rating could 
lead  to  a  downward  adjustment  to  the  country's  systemic  support  indicator  (SSI)  -  the 
measure  that  Moody's  used  to  determine  a  bank’s  rating  uplift  due  to  systemic  support 
considerations. 

Available 

banks. 

Greek 

risks 

for 

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impact was somehow offset by the prospect of recapitalisation, of which Moody’s appeared 
to have little doubt. In the medium/long-term, however, the PSI could have some positive 
impact. This was because any uplift in the rating of the sovereign translated into an uplift 
of the banks’ ratings, given their high exposure to the GGBs and Moody’s methodology. 

Finally,  as  the  PSI  itself,  without  being  offset  by  the  first  recapitalisation,  would  have 
almost certainly resulted in a series of spectacular bank bankruptcies, it is only logical that 
market confidence in the solvency of the banks hinged on the assumption of the PSI being 
conditioned  on  the  first  recapitalisation.  And  if  so,  any  failure  to  communicate  the  PSI 
conditioned  on  the  subsequent  capital  injections  in  a  swift  and  decisive  manner  would 
backfire with the immediate markets’ reaction and further hit to the confidence that was 
already running low. As already mentioned, the first official announcement of the PSI was 
made  in  the  July  2011  Euro  Summit  statement.  And  indeed,  the  explicit  mentioning  of 
‘recapitalisation of Greek banks’ appears in the statement twice98, though one could wonder 
whether this could have been stressed in a firmer way99. 

In  brief,  the  PSI  contributed  to  the  downgrades  of  Greek  banks  and  affected  market 
confidence in the short-term, even though some of that fall in confidence was unavoidable, 
given the nature of every debt restructuring operation. However, the data on the deposit 
outflows, yields and the uncertainty index suggests that political uncertainty combined with 
other factors, such as the deteriorating macro-environment and concerns about the quality 
of banks’ loan books, had a greater impact on overall market confidence. 

3.3.1.5  The possibility of an earlier PSI 

The  question  of  whether  the  PSI  could  have  been  negotiated  and  implemented  earlier 
generated some controversy.  

Firstly, there was a consensus that upfront debt restructuring was not feasible at the outset 
of the first EAP100. There was a lack of political will to resort to debt restructuring, combined 
with  some  hopes  that  the  programme  itself  would  be  enough  to  restore  stability.  For 
instance,  the  BoG’s  view  -  shared  by  the  ECB  -  was  that  restructuring  in  2010  was 
unnecessary because debt targets seemed feasible provided the adjustment programme 
was consistently implemented. Nor was it desirable, because it would have serious negative 
impacts on the assets of social security funds, the banking sector (including contagion to 
other Euro-zone members) and private investors in Greek government securities101. The 
potential moral hazard implied in debt-restructuring and sending the wrong signal to other 
EU Member States also played a role, so did the absence of the tools - the EFSF was still 
not in place. It is also plausible that it would have been impossible for the Greek banks’ 
boards  of  directors  to  accept  voluntary  participation  in  a  government  bond  exchange  in 
2010 and early 2011102. 

The IMF country report from June 2013 emphasised that ‘many commentators considered 
that the Greek programme would not stave off debt rescheduling or a default and that the 
level of public debt would remain high and would be aggravated by the severe recession, 

21 

EU 

EU 

the 

and 

July 

area 

2011.  Available 

98 Council of the European Union, 2011. Statement by the heads of state or government 
at: 
institutions, 
of 
https://www.consilium.europa.eu/media/21426/20110721-statement-by-the-heads-of-
state-or-government-of-the-euro-area-and-eu-institutions-en.pdf 
99 Whether the communication of the first bank recapitalisation was adequate and upfront 
is outside the scope of this study, though it would certainly merit detailed analysis. 
100  IMF,  2013.  Ex  post  evaluation  of  exceptional  access  under  the  2010  stand-by 
arrangement. IMF Country Report No. 13/156. 
101 Bank of Greece, 2013. The chronicles of the great crisis. The Bank of Greece: 2008-
at: 
2013. 
https://www.bankofgreece.gr/Publications/Selections%20from%20The%20Chronicle%20
of%20the%20great%20crisis%20-%20the%20Bank%20of%20Greece%202008-
2013.pdf 
102 View supported by the stakeholders interviewed from the Bank of Greece. 

Available 

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while the non-concessionary interest rates on official debt worsened the debt dynamics’103. 
In  its  evaluation  of  its  own  program,  the  IMF  staff  concluded  that  ‘the  delay  of  debt 
restructuring  reduced  private  bond  holdings  subject  to  restructuring,  as  amortisation 
payments to the private sector amounted to about €50 billion during 2010–early 2012’104. 

More generally, if the actual outcomes had been more in line with the early macroeconomic 
forecasts produced by the three institutions and Greek authorities, the PSI would not have 
been needed. 

However, as time passed, it became increasingly evident that the PSI might happen. In 
theory, from a macroeconomic perspective, it would have been beneficial to front-load the 
PSI  with  the  perception  of  markets  restored  earlier,  more  limited  contribution  to  the 
currency re-domination fears, larger stock of debt available for the hair-cut and consequent 
sizable savings for the state stemming from the high cost of borrowing and debt servicing. 
One  argument  raised  by  a  Greek  stakeholder  pointed  to  the  high  spread  on  GGBs  (see 
Figure 3.13), suggesting that markets had been convinced and already priced in quite early 
on the possibility of some sort of debt restructuring. 

Several  interviewees  based  in  Greece,  as  well  as  three  stakeholders  representing  the 
European Commission and ESM, observed that earlier PSI would have been more optimal. 
A few argued that the timing of the PSI was to some extent to accommodate foreign banks 
offloading their Greek debt. The opposite view was also expressed, with one interviewee 
downplaying the likelihood of this, given other - and comparatively greater - drawbacks of 
a delayed debt-restructuring (e.g. costs related to the uncertainty that would eventually 
need to be borne by the Greek state and indirectly by the three institutions). Similarly, all 
staff interviewed from the European Commission pointed to additional considerations, such 
as the unprecedented scale and complexity of the PSI, lagging and highly uncertain data 
on  key  macroeconomic  indicators  that  (retrospectively)  did  not  capture  the  actual 
magnitude of the recession, and the considerable institutional effort and resources required 
by the first EAP.  

70  per  cent  of  Delphi  panel  experts  who  responded  to  the  survey  disagreed/strongly 
disagreed that the PSI was well timed.  

Figure 3.15  Delphi survey – the extent to which you agree or disagree that the PSI was 

well-timed 

Source: Delphi survey, N=30 

103 More detailed discussion is available in IMF (2013). Country Report No13/156, para 56 
and 57. Available at: https://www.imf.org/external/pubs/ft/scr/2013/cr13156.pdf and IMF 
(2015).  Blog  –  Greece:  past  critiques  and  the  path  forward,  5  July  2015.  Available  at: 
https://blogs.imf.org/2015/07/09/greece-past-critiques-and-the-path-forward/ 
104 IMF, 2017. Greece: Ex post evaluation of exceptional access under the 2012 extended 
arrangement. Country Report No. 17/44. 

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3.3.1.6  Impact of the PSI on insurance companies and pension funds 

Besides the losses of Greek banks from PSI, both pension funds and insurance companies 
also recorded significant losses due to their exposure to GGBs.  Importantly, contrary to 
banks, pension funds’ losses were not covered by the subsequent recapitalisations. 

With  respect  to  pension  funds  capital  reserves  management,  according  to  laws 
No.1611/1950105, No.2216/1994106 and No.3586/2007107 all the Greek pension funds are 
obliged  to  transfer  to  the  BoG  the  remaining  share  of  their  capital  beyond  the  level 
covering their current liabilities. These resources were deposited in an account in BoG and 
constitute the so-called “Common Capital” which is managed by the BoG on behalf of the 
pension funds. The management of the “Common Capital” by the BoG takes place within 
the  framework  of  the  law  No.2469/1997,108  according  to  which  the  Bank  is  obliged  to 
invest the assets of the “Common Capital” exclusively in GGBs. 

With triggering the Collective Action Clauses (CACs) under the PSI, all the GGBs in which 
pension funds invested through “Common Capital” were subject to the hair-cut. The face 
value (pre-PSI) of these bonds was around EUR 19.6 bln. From these EUR 19.6 bln, EUR 
17.4  bln  concerned  GGBs  under  Greek  Law  and  the  remaining  EUR  2.2  bln  were  GGBs 
under foreign Law. 

Moreover, apart from the obligatory investments of their capital in GGBs, Greek pension 
funds had also voluntarily invested some additional capital in them. More specifically, some 
Greek pension funds, following decisions of their Boards of Directors, had invested (pre-
PIS) an additional amount of EUR 6.3 bln in GGBs. There is no information available on 
the exact split of these GGBs under the Greek and foreign law(s). Nonetheless, some these 
GGBs under foreign law held by pension funds were subject to the hair-cut. 

Thus, the total amount of capital that the Greek pension funds invested in GGBs and which 
subsequently participated in the PSI amounted to  EUR 25.9 bln, of  which EUR 19.6 bln 
from  obligatory  investment  in  GGBs,  and  the  remaining  EUR  6.3  bln  in  voluntary 
investment in GGBs (see Table 3.2). 

Consequently, the Greek pension funds suffered significant losses as a result of the PSI. 
More specifically, the face value of GGBs under Greek law in which the pension funds had 
obligatorily invested amounted to EUR 10.1 bln (post-PSI) leading to the loss of EUR 7.3 
bln.  Also,  the  face  value  GGBs  under  foreign  law,  in  which  the  pension  funds  had 
obligatorily invested shrank by further EUR 1.2 bln. Finally, pension funds had a loss of 
EUR 3.4 bln from their voluntary investment in GGBs. As a result, their total losses from 
the PSI amounted to EUR 11.9 bln109. 

Table 3.2  Face value of GGBs held by the Greek pension funds, before and after PSI 

(EUR bln) 

GGBs under Greek Law 

17.4 

10.1 

7.3 

(obligatory investment) 

Value pre-PSI  Value post-PSI  Total loss 

105  Law  No.1611/1950,  Government  Gazette  304  A’,  31/12/1950.  Available  at: 
http://www.kep.unipi.gr/wp-content/uploads/2017/11/1611_1950.pdf 
106  Law  No.2216/1994,  Government  Gazette  83  Α’  31/05/1994.  Available  at: 
https://www.et.gr  
107  Law  No.3586/2007,  Government  Gazette  151  A’  10/07/2007.  Available  at: 
http://www.ethe.org.gr/files/pdf/_200771995227.pdf 
108  Law  No.2469/1997,  Government  Gazette  38  A’  14/03/1997.  Available  at: 
https://www.et.gr   
109 For all the above data see Bank of Greece note to the Ministry of Finance, with reference 
2nd, 
number 
at: 
August 
https://www.tovima.gr/files/1/2012/09/04/PINAKES%20PSI.pdf 

Available 

2012. 

222, 

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Value pre-PSI  Value post-PSI  Total loss 

GGBs under foreign Law 

2.2 

(obligatory investment) 

GGBs 

6.3 

(voluntary investment) 

1.0 

2.9 

1.2 

3.4 

TOTAL 

25.9 

14.0 

11.9 

Source: Bank of Greece note to the Ministry of Finance, with reference number 222, August 2nd, 
2012, available on-line: https://www.tovima.gr/files/1/2012/09/04/PINAKES%20PSI.pdf   

Among 208 Greek pension funds that existed when the PSI took place, the funds with the 
greatest  losses  were  the  occupational  fund  for  engineers  and  public  works  contractors 
(EUR  1.18  bln),  the  fund  of  commercial  stores’  employees  (EUR  455.8  mln),  the  civil 
servants’ supplementary insurance fund (EUR 378.8 mln), the pension fund of Athenian 
newspapers staff (EUR 342.1 mln) and the lawyers pension fund (EUR 320.1 mln). 

On one hand, pension funds and other domestic bondholders suffered losses of around 65 
per cent in the face value of their claims, whereas banks were fully compensated through 
the  mechanism  of  bank  recapitalisation.  On  the  other  hand,  it  is  noted  that  the  Greek 
Government borrowed EUR 4.5 bln in order to provide EFSF bonds to the pension funds 
as an offset for the reduction in their assets due to the PSI110. In addition, the Greek State 
has continued to provide grants to the pension funds on an annual basis. According to the 
Greek Government Budget for years 2011-2016, published by the Ministry of Finance, the 
grant  component  to  pension  funds  from  the  State  Budget  during  period  2009-2014 
amounted to EUR 76.6 bln111. Thus, while not in a straightforward sense as recapitalisation 
of  banks,  the  Greek  pension  funds  kept  receiving  a  state  support  that  helped  to  offset 
their PSI related losses from subsequent state grants. 

Regarding insurance companies, it is noted that the BoG absorbed the supervision of the 
insurance sector in December 2010 and requested a technical assistance mission from the 
IMF112. With respect to the market structure of the insurance companies sector,  prior to 
the PSI it was characterized by a few large national companies, some subsidiaries of large 
international insurance companies, while a large number of very small insurers accounted 
for the rest of the sector. The insurance sector had already faced problems prior to the 
crisis with some insurance companies forced into administration. In addition, a number of 
insurance  companies  were  part  of  the  banking  groups  and  when  the  banks  became 
insolvent  their  insurance  subsidiaries  got  into  trouble  too.  More  generally,  for  large 
international insurance companies, the issue of PSI effects was solved relatively early and 
did not have major impact on their solvency position. Furthermore, some of the largest 
national  insurance  companies  got  financing  from  banks,  whereas  many  of  the  small 
insurance companies did not afford the losses and went liquidated. 

Regarding the impact of the PSI on the insurance sector, Hellenic Association of Insurance 
Companies estimated the losses from the PSI in the range between EUR 2 bln and EUR 3 
bln113. According to BoG’s Annual Report for the year 2012, in order to counter the impact 

for  Culture,  Research 

110 See Bank of Greece, 2014. The Chronicle of the Great Crisis. The Bank of Greece 2008-
2013,  Centre 
at: 
http://www.setee.gr/images/pdf/ToXronikoKrisiTE.pdf 
111 That is, EUR 12.872 bln in 2009, EUR 13.213 bln in 2010, EUR 14.759 bln in 2011, EUR 
13.443 bln in 2012, EUR 11.631 bln in 2013, and EUR 10.444 bln in 2014. 
112 However, the request has to date not been followed-up. 
113 The lower bound was referred in a speech by the President of the Hellenic Association 
of 
the  2013  Annual  Meeting.  Available  at: 
http://www.eaee.gr/cms/sites/default/files/teuxos43.pdf  

and  Documentation.  Available 

Insurance  Companies  during 

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from PSI, insurance companies increased their capital by EUR 1.5 bln. In addition, in order 
to alleviate the impact of the PSI, insurance firms were granted from BoG a derogation in 
the valuation of GGBs and were allowed to gradually cover their losses by the end of 2013. 
Off the 55 Greek-based insurance companies, 23 made use of the derogation. 

Finally,  with  respect  to  the  effects  of  PSI  in  the  insurance  market,  one  interviewee 
representing a Greek regulatory authority, stated that when the PSI took place, insurance 
companies faced serious problems. 

3.3.2  Effectiveness of the measures to stabilise the sector and individual banks 

The following section addresses study question 3b. 

Question 3b: How effective were the measures taken under the programme to stabilise 
the sector and the individual banks (e.g. recapitalisations, bank resolutions) and restore 
adequate capitalisation? 

This section focuses on the recapitalisations and resolutions and specifically considers the 
following aspects: 

  Design and implementation of the three recapitalisations and resolutions; 

  Assessment of the effectiveness of the recapitalisations and resolutions in restoring 

adequate capitalisation. 

3.3.2.1  Design and implementation of the three recapitalisations and 

resolutions 

The first step to prepare the ground for all three recapitalisations and possible resolutions 
was the valuation of banks’ assets and liabilities to estimate the funding gap at the level 
of an individual bank.  

In  June  2011,  the  BoG  commissioned  BlackRock  to  conduct  an  Asset  Quality  Review 
(AQR)114,  a  diagnostic  study  of  Greek  commercial  banks’  loan.  The  external  consultants 
(BlackRock)  were  contracted  to  ensure  the  independence  and  transparency  of  the 
assessment. The exercise took into account the potential losses generated by the PSI, as 
well as potential losses on Greek banks’ loan portfolios for the next three years, subject to 
a number of assumptions.  

In March 2012, the BoG and HFSF finalised a strategic assessment115 of the banking sector 
focusing on the viability of banks and incorporating the inputs from the BlackRock study. 
The  three  institutions  were  closely  involved  in  both  exercises,  although  overall 
responsibility 
for  the  estimation  of  capital  needs  under  this  and  subsequent 
recapitalisations lay with the national supervisors. The results of the assessment conducted 
by  the  BoG  and  HFSF  were  then  reconciled  with  the  results  of  the  parallel  analysis 
conducted by the ECB, resulting in a final estimation of the minimum capital needs for each 

The upper bound was referred in 2017, in a speech from another HAIC president. Available 
at: http://www.eaee.gr/cms/sites/default/files/teuxos48.pdf 
114 This diagnostic study was required under the June 2011 Memorandum of Economic and 
Financial Policies. It covered all banks (except cooperatives) and estimated the expected 
losses on banks’ loan portfolios as of 30 June 2011, both over a three-year and a loan-
lifetime horizon, on the basis of two scenarios, the baseline and the adverse scenario. The 
diagnostic study covered all loans carrying Greek risk and factored in possible changes in 
the  key  macroeconomic  aggregates  (e.g.  GDP  growth,  unemployment,  inflation,  house 
prices). 
115  The  assessment  used  the  criteria  envisaged  in  the  MoU  2012,  including:  (i) 
shareholders’  soundness,  (ii)  quality  of  management  and  risk  management  system,  (iii) 
capital, liquidity, and profitability metrics, (iv) BoG assigned ratings to bank risks, and (v) 
sustainable business model.  

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of the 18 banks assessed. Banks whose Core Tier 1 ratio fell below a minimum threshold 
were subject to the first recapitalisation/ resolutions116. 
The  strategic  assessment  of  the  BoG  –  that  apart  from  BlackRock  inputs  included  also 
contributions from the HFSF - identified four large and systemically important ‘core banks’, 
namely the National Bank of Greece, Eurobank, Alpha Bank and Piraeus Bank. These were 
to receive direct recapitalisation using programme funds, irrespective of the capital injected 
by  private  investors.  All  other  ‘non-core’  banks  were  to  be  recapitalised  entirely  by  the 
private sector by the end of April 2013. Otherwise, they would be resolved by the end of 
that year117 and the assets of resolved banks118 transferred to the four ‘core banks’, subject 
to  negotiations  involving  BoG,  HFSF  and  the  representatives  of  those  ‘core  banks’.  The 
terms  of  the  agreements  for  recapitalisation  of  each  bank  had  to  be  approved  by  DG 
Competition, subject to compliance with the EU state aid and competition rules. Banks also 
had to agree restructuring plans with the European Commission119.  

In short, the over-riding principle proposed by the three institutions and accepted by the 
Greek authorities that subsequently guided all recapitalisations and resolutions under the 
three EAPs was to maximise the involvement of private investors and minimise the control 
of the state over the recapitalised banks to ensure the business autonomy of banks de jure 
and de facto120. This approach stemmed  from a  general mistrust of the  state, given the 
government’s  mismanagement  of  the  economy  prior  to  the  crisis.  More  specifically,  the 
state (via HFSF) and private investors meant to buy shares in the recapitalised banks, and, 
under the first recapitalisation (given negative equity of banks), private investors would 
receive  additional  ‘warrants’121  for  each  share  they  purchased.  Those  rights  were  -  in 
principle - attractive for private investors because of the possibility the share price would 
increase  above  the  ‘exercise’  price,  should  the  banks  recover.  The  difference  between 
market price and the discounted ‘exercise’ price varied over time but were generally quite 
substantial122. An additional feature of the first recapitalisation was that if private investors 
could buy at least 10 per cent shares in a bank, then they could exert full control, despite 
the state (via HFSF) holding the majority of the shares. The only exception was in the case 
of  major  decisions,  such  as  capital  increases  or  mergers,  which  required  state  approval 
(via HFSF)123.  

in 

the 

level 

context. 

Available 

European 

116  European  Commission,  2017.  Coping  with  the  international  financial  crisis  at  the 
national 
at: 
https://ec.europa.eu/info/publications/coping-international-financial-crisis-national-level-
european-context_en 
117 Bank of Greece, 2013. The Chronicles of the Great Crisis: Bank of Greece 2008-2013. 
118 For commercial banks placed under resolution, the perimeter of the transferred assets 
and liabilities was selected on a case-by-case basis, focusing mainly on the ‘healthy and 
viable’ parts, including the loan portfolio. Cooperative banks, by contrast, only  had their 
deposits transferred, due to the relatively low quality of their loan portfolios and the limited 
interest from bidders in acquiring additional assets. 
119 World Bank, 2017. Bank resolution and bail-in in the EU: selected case studies pre and 
post 
at: 
http://documents.worldbank.org/curated/en/731351485375133455/pdf/112265-
REVISED-PUBLIC-FinSAC-BRRD-CaseStudies.pdf 
120 CADTM, 2017. Greece: PSI and process of bank recapitalisation (2012-2016).  
121 Warrants are the rights to buy additional shares in the future at a prescribed ‘exercise’ 
price. 
122 For instance, as part of the third recapitalisation, the new shares that were issued had 
a discount on the last quoted price, ranging from 34.4 per cent in the case of Alpha, to 80 
and  93  per  cent,  respectively  in  the  cases  of  Piraeus  and  NBG.  See,  for  example, 
Macropolis, 
at: 
http://www.macropolis.gr/?i=portal.en.economy.3169 
123 MIT, 2016. Beyond austerity – reforming Greece’s economy. 

complete 

Available 

Available 

building. 

BRRD. 

Greek 

banks 

2015. 

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This  structure  was  unique,  effectively  cancelling  out  state  control  over  the  supported 
banks, despite it bearing most of the costs of restructuring and securing their capital. The 
design of the restructuring was made even more challenging by the critical role of private 
capital in  a  time  when  private  investors  had  only limited  appetite  (especially  during  the 
first  recapitalisation  in  2013).  Time  was  also  of  the  essence,  however.  Delaying  the 
recapitalisation exercise could hamper banks' ability to re-access the Eurosystem's regular 
monetary  operations,  while  the  recapitalisations  and  resolutions  targeted  no  losses  for 
depositors  in  order  to  avoid  further  deterioration  of  confidence124,  another  element  that 
guided (and constrained) the design.  

Following the losses incurred from the PSI, the first recapitalisation was completed in June 
2013. Given the expected losses stemming from the PSI, the initial financial envelope of 
EUR 10 bln devoted to the financial sector specifically under the first EAP was subsequently 
increased to EUR 50 bln earmarked under the second EAP. One half was allocated to offset 
the expected PSI-related losses, and the other half - equivalent to 5 per cent of the total 
assets  in  the  system  -  was  made  available  to  resolve  unviable  banks  and  deal  with  the 
existing and future credit losses125.  

Banks  were  recapitalised  with  borrowing  from  the  official  sector  during  the  second  EAP 
2012-2014.  The HFSF funds injected into the banking system amounted to approximately 
EUR 25.5 bln, with private investors contributing another EUR 3.2 bln. More specifically, 
four  ‘core  banks’126  -  considered  by  regulators  as  systemically  important  -  were 
recapitalised,  while  most  of  the  remaining  banks  were  partitioned  into  ‘good’  and  ‘bad’ 
banks,  with  their  good  parts  sold  to  the  four  systemic  banks.  In  parallel  to  the  bank 
recapitalisation  process,  the  resolution  of  the  Greek  insolvent  banking  system  was  also 
advanced, chiefly through implementation of the Resolution Law and the transfer of Cypriot 
bank branches to Piraeus Bank127. The costs related to the resolution of banks covered by 
HFSF reached EUR 13.5 bln. 

Overall, a total of EUR 38.9 bln in public funds were used for the first recapitalisation and 
the series of resolutions between 2011-2018. Box 3.7 provides an overview of both. 

124 Contrary to the approach undertaken in Cyprus in 2013. 
125 IMF, 2017. Greece: Ex-Post Evaluation of Exceptional Access Under the 2012 Extended 
Arrangement. Country Report No. 17/44 
126 Alpha Bank, Eurobank, National Bank of Greece (NBG) and Piraeus Bank. 
127 Bank of Greece, 2013. The Chronicles of the Great Crisis: Bank of Greece 2008-2013. 

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Box 3.7 

First recapitalisation and resolutions 

The first recapitalisation was the largest of three, with a total cost of EUR 28.6 bln and 
involving mostly public funds provided via HFSF (EUR 25.5 bln in the form of EFSF notes) 
and  some  private  capital  (EUR  3.1  bln).  It  focused  on  four  large  banks:  Alpha  Bank, 
Eurobank, National Bank of Greece (NBG) and Piraeus Bank. The distribution of capital 
losses for those four banks, corresponding to two main factors - the PSI and credit losses 
- are shown in 0 in section 3.3.1.3. 

To mitigate the disincentives created by prevailing market conditions and uncertainty, 
and to minimise the losses to taxpayers, the recapitalisation featured, inter alia, warrants 
and  the  prospect  of  full  control  conditional  on  ≥  10  per  cent  ownership  (with  the 
exception of certain key veto rights for public ownership).  

Of  the  four  large  banks,  three  became  fully  controlled  by  private  investors,  while 
Eurobank remained in the state’s hands, as the private sector was not willing  to cover 
minimum 10 per cent of capital needs. HFSF became the majority shareholder in all four 
banks. 

Private 
capital raised  

State capital 
raised  

(EUR bln) 

(EUR bln) 

State stake 
after the first 
recapitalisation 
%  

Alpha Bank 

Eurobank 

NBG 

Piraeus Bank 

0.6 

0 

1.1 

1.4 

4.0 

5.8 

8.7 

6.4 

83.7 

98.6 

84.6 

78.3 

Source: IMF 2013. Country Report No. 13/241 

Resolution measures were implemented for the first time in the case of Proton Bank. Subsequently, 
at  the  end  of  2011,  the  BoG  decided  to  withdraw  the  authorisation  of  T  Bank,  followed  by  the 
resolution of the cooperative banks of Achaia, Lamia and Lesvos-Limnos in March 2012. 2013 saw 
the resolutions of  ATE  bank, TT Hellenic Postbank, FBB,  Probank and the  Cooperative Banks of 
Western Macedonia, Dodecanese and Evia. The costs of the resolution of those banks covered by 
HFSF reached EUR 13.5 bln128.   

The protracted and severe recession that continued in 2013 took a toll on banks’ capital 
base,  with  the  impairment  levels  of  their  loan  books  increasing  and  some  banks 
experiencing  knock-on  effects  from  the  financial  crisis  in  Cyprus.  This  led  the  BoG  to 
commission BlackRock to carry out an updated diagnostic study of the loan portfolios of all 
Greek commercial banks as  of 30 June 2013.  This study built on the earlier  2011 study 
and assessed banks’ capital position vis-à-vis the minimum threshold of Core Tier 1 for the 
period June 2013-December 2016129, allowing for estimates of the existence and size of a 
bank’s capital gap, and related capital needs.  

Consequently,  the  capital  needs  for  all  Greek  commercial  banks  as  part  of  the  second 
recapitalisation were estimated by the BoG (with inputs from the BlackRock AQR) at EUR 
6.4 bln. This was a fairly limited amount compared to the first recapitalisation. However, 
unlike the first recapitalisation, where the estimates of capital needs that bound the banks 
corresponded  to  an  adverse  scenario,  the  estimate  of  capital  needs  in  the  second 
recapitalisation reflected the baseline scenario, with the adverse scenario to be taken into 
account for future losses130. This estimate assumed that Greek banks would return to profit 

128 Bank of Greece, 2013. The chronicles of the great crisis: Bank of Greece 2008-2013. 
129 Bank of Greece, 2013. The chronicles of the great crisis: Bank of Greece 2008-2013. 
130  European  Commission  (2017).  Coping  with  the  International  Financial  Crisis  at  the 
at: 
National 

European 

Available 

Context. 

Level 

in 

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in 2015. According to some press reports, this figure was viewed sceptically by IMF staff 
and the ECB, particularly given the rapidly increasing rate of NPLs131,132.  

However, in its review conducted in June 2014133, IMF staff limited themselves to observing 
that the assumptions used by the BoG were ‘optimistic’ and likely to be at the ‘low end’ of 
actual requirements, while the ECB’s  Europe-wide stress tests  covering 130 large banks 
conducted  in  October  2014  (following  the  second  recapitalisation)  stated  that  the  four 
systemic banks did not require an additional infusion of capital. The fact that the second 
recapitalisation was fully covered by private funds, was another sign that the capital needs 
identified were considered credible also by private investors. Ultimately, it was the BoG’s 
estimates that were used to pin down the level of capital needs for the banks. The BoG 
officially  requested  banks  to  submit  their  capital  plans  by  mid-April  2014  to  cover  the 
identified  capital  gaps.  This  led  to  the  second  recapitalisation  between  May  and  June 
2014134. Box 3.8 provides an overview.  

Box 3.8 

Second recapitalisation 

The total amount raised across the four banks was EUR 8.3 bln and involved exclusively 
private  funds  (mostly  hedge  funds),  resulting  in  substantial  increases  in  private 
ownership across the banks (including Eurobank).  

Private capital 
raised  

(EUR bln) 

State stake 
prior the second 
recapitalisation 
(%) 

State stake 
after the second 
recapitalisation 
(%) 

Alpha Bank 

Eurobank 

NBG 

Piraeus 
Bank 

1.20 

2.86 

2.50 

1.75 

81.7 

95.2 

84.4 

81.0 

69.6 

35.4 

57.2 

67.3 

Source: MIT (2016). Beyond Austerity – Reforming the Greek Economy, BoG 

Despite  some  economic  stabilisation  in  2014,  the  banking  system  remained  precarious 
following  the  second  recapitalisation,  primarily  because  the  portfolios  of  NPLs  were 
sensitive  to  the  protracted  economic  downturn.  CET  1  capital  rose  only  marginally  as  a 
result  of  the  recapitalisation,  from  EUR  26.9  bln  in  December  2013  to  EUR  28.6  bln  in 
December  2014.  This  was  largely  due  to  two  reasons:  (i)  increased  provisions  from 
projected  losses  on  private  loans  that  are  normally  taken  away  from  capital;  and  (ii)  a 
significant counterbalancing boost to the banks’ regulatory capital in the form of deferred 
tax  assets  (DTA),  which  did  not  rely  on  future  profitability  as  they  could,  under  certain 
conditions,  be  converted  into  a  receivable  (“Tax  Credit”)  from  the  Greek  State  135.  By 

at: 

https://ec.europa.eu/info/publications/coping-international-financial-crisis-national-level-
european-context_en 
131 Financial Times, 24 February 2014. Greece in banking stand-off with bail-out leaders. 
Available 
https://www.ft.com/content/90df6be6-9ca7-11e3-b535-
00144feab7de?siteedition=uk 
132 For detailed description of assumptions underlying the estimation of capital needs under 
second recapitalisation see Bank of Greece, March 2014. 2013 Stress Tests of the Greek 
Banking Sector. 
133 IMF, June 2014. Country Report No. 14/151 
134 Bank of Greece, 2013. The chronicles of the great crisis: Bank of Greece 2008-2013 
135 The Greek authorities put in place in 2014 a regime which allowed credit institutions, 
under certain conditions, to convert large part of the deferred tax assets which have arisen 
from the substantial losses recorded from the increased provisioning of loans and the PSI 
losses, to a receivable (“Tax Credit”) from the Greek State. Effectively, this has ensured 

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contrast,  the  results  of  the  ECB  comprehensive  assessment  of  130  European  banks 
published in October 2014 revealed no further capital needs for the four Greek systemic 
banks. 

2015 was meant to be a turning point for the sector, but the situation took an abrupt turn 
for the worse in January 2015, when the elections saw the coalition of SYRIZA and ANEL 
parties - that opposed the measures of the adjustment programmes - form a government. 
Prolonged  negotiations  with  the  three  institutions  in  early  2015,  coupled  with  rising 
uncertainty  about  the  international  support,  doubts  about  Greece’s  solvency  and  - 
ultimately - its membership in the Euro zone, fuelled high uncertainty. This led to a rapid 
outflow  of  domestic  deposits,  reaching  nearly  EUR  50  bln  between  December  2014  and 
June 2015, a fall of almost one-quarter of total deposits over the period.  

On  26  June  2015,  the  government  announced  a  referendum  on  the  new  bailout 
programme, further denting confidence and renewing flights of private deposits. The ECB’s 
rejection to increase the loan limit, given the cancellation of the ECB waiver for the use of 
GGBs  as  collateral  by  Greek  banks  in  February  2015,  led  to  the  introduction  of  capital 
controls136 and bank holiday in June-July 2015. 

All  of  this,  combined  with  the  faltering  economy  and  rising  NPLs,  called  for  yet  another 
assessment of banks’ capital needs. In August 2015, the ECB launched an AQR and stress-
test exercise for the four systemic Greek banks, while the BoG undertook a similar exercise 
for  the  smaller  banks.  The  result  was  the  identification  of  capital  needs  under  both  a 
baseline  and  an  adverse  macroeconomic  scenario.  The  capital  needs  for  the  four  ‘core 
banks’ under the adverse scenario were estimated at EUR 9.6 bln. The total capital needs 
for all banks reached EUR 13.7 bln, of which EUR 3.7 bln was to be provided by private 
investors and conversion of debt into equity, with the remaining EUR 10 bln to come from 
public  or  private  investors.  Eventually,  the  banks  managed  to  raise  all  of  the  required 
capital, with the majority coming from private investors, at the cost of a substantial dilution 
of HFSF shares. Box 3.9 provides an overview of that third recapitalisation.  

Box 3.9 

Third recapitalisation 

The AQR required Greek banks to maintain a minimum CET 1 ratio of 9.5 per cent under 
the  baseline  scenario  and  8  per  cent  under  the  adverse  scenario.  Senior  bondholders 
were  included  in  bail-in  rules  under  a  new  recapitalisation  law  passed  by  the  Greek 
parliament in October 2015. 

The  capital  shortfall  calculated  by  the  ECB  was  less  than  expected,  though  NBG  and 
Piraeus  Bank  –  each  of  which  had  large  books  of  mortgages  and  SME  loans  -  faced 
disproportionately large shortfalls of some EUR 4 bln each137.  

Eventually,  Eurobank  and  Alpha  Bank  raised  all  of  the  required  capital  from  private 
investors.  Together,  all  four  banks  raised  EUR  5.6  bln  from  private  investors  and 
converted  EUR  2.7  bln  from  voluntary  liability  management  exchange  of  hybrid  and 
subordinated  capital  instruments,  as  well  as  senior  unsecured  debt  instruments. 
Therefore, EUR 8.3 bln of the required EUR 13.7 bln was raised from private sources, 
with  the  remaining  EUR  5.4  bln  injected  into  NBG  and  Piraeus  Bank  coming  from  the 
HFSF. 

that a large part of the Greek banks’ DTAs, known as Deferred Tax Credits (DTCs), did not 
rely  on  the  banks’  future  profitability  (the  prospects  of  which  were  increasingly  bleak), 
allowing them to count as regulatory capital. 
136 MIT, 2016. Beyond Austerity – Reforming Greece Economy. 
137  Euromoney,  November  2015.  Greek  banks  go  for  third  lucky.  Available  at: 
https://www.euromoney.com/article/b12kn44ggnp90x/greek-banks-go-for-third-time-
lucky  

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The  bulk  of  the  capital  requirements  contributed  by  the  HFSF  were  met  through 
contingent  capital  instruments  (CoCos)  that  converts  into  ordinary  shares  if  a  bank’s 
capital falls below certain level, rather than direct cash injections138. 

As a result of the third recapitalisation, the new shares issued for private investors had 
a discount on the last quoted price, ranging from 34.4 per cent in the case of Alpha, to 
80 and 93 per cent, respectively, in the cases of Piraeus and NBG. The state’s share was 
diluted and shrank dramatically, and the HFSF found itself with a minority holding in all 
four systemic banks139.  

State stake prior to the 
third recapitalisation 
(%) 

State stake after the 
third recapitalisation 
(%) 

Alpha Bank 

Eurobank 

NBG 

Piraeus Bank 

66.3 

35.4 

57.2 

66.9 

11 

2.4 

40.4 

26.4 

Source: MIT (2016). Beyond Austerity – Reforming the Greek Economy; HFSF ECA (2017). The 
Commission intervention in the Greek financial crisis; World Bank (2016). Bank Resolution and 
‘Bail-In’ in the EU: Selected Case Studies Pre and Post BRRD; Centre for International 
Governance Innovation (2016); EIU (2015). 

In  terms  of  resolutions,  in  2015,  two  final  banks  (Panellinia  Bank  and  Cooperative  of 
Peloponnese) were resolved at the cost of nearly EUR 400 mln. More generally, the total 
resolution cost for the  period 2011-2015  stood at EUR 15.1 bln, of  which HFSF covered 
13.4 bln. In all 14 Greek banks placed under resolution, shareholders were entirely written 
off. In some case with so significant losses that also resulted in high reluctance on behalf 
of foreign investors to invest again soon in the Greek banking system140. In some banks - 
notably the cooperatives – shareholders whose stakes were written off were mainly retail 
investors. In two cases, subordinated debt was also wiped out141. 
Regarding the framework for the resolutions, the existing rules were fairly general in 2011-
2013  and  allowed  considerable  flexibility  in  design.  All  resolutions  over  that  time  were 
implemented in line with Law 3601/2007 and Law 4021/2011142, and a separate Resolution 
Scheme set up within the Hellenic Deposit and Investment Guarantee Fund (HDIGF). The 
resolution framework was further strengthened143, offering alternative resolution tools and 
providing  for  the  financing  of  resolution  measures  through  the  HDIGF  and  the  Hellenic 

138 Centre for International Governance Innovation, 2016. How the SYRIZA led government 
privatised Greek banks. 
139  The  EIU,  November  2015.  Bank  recapitalisation  gets  under  way.  Available  at: 
http://country.eiu.com/article.aspx?articleid=1193711503  
140 Reuters, October 2012. CA takes EUR 2 bln hit from the sales of Emporiki. Available at: 
https://www.reuters.com/article/us-cagricole-emporiki/credit-agricole-takes-2-billion-
eur-hit-from-emporiki-sale-idUSBRE89G0AM20121017 
141 World Bank, 2016. Bank Resolution and Bail-In the EU. Selected studies pre and post 
BRRD 
142 In October 2011, Law 4021/2011 amended Law 3601/2007, among other things with 
regard to bank resolution 
143 In more detail, Articles 9-11 of Law 4051/2012, amending the provisions of Law 
3864/2010 establishing 
the Hellenic Financial Stability Fund (HFSF), Law 3601/2007 on capital adequacy of credit 
institutions and Law 3746/2009 on the Hellenic Deposit and Investment Guarantee Fund 
(HDIGF), along with the provisions of Law 
4021/2011 on enhanced measures for the supervision and resolution of credit institutions. 

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Financial Stability Fund144. In addition, compliance with the state aid rule was checked by 
the European Commission with a leading role of the DG Competition. The last resolution 
(Peloponnese  Cooperative  Bank)  took  place  under  much  more  detailed  and  tougher 
provisions of the Bank Recovery and Resolution Directive (BRRD)145, as transposed by Law 
4335/2015 in July 2015146.  
Until the end of 2015, two resolution tools were applied: the ‘Sale of Business’ tool was 
used in 12 cases, while ‘bridge banks’ was established twice (prior to the BRRD framework). 
The two bridge banks were under the control and management of HFSF, which acted as 
the  sole  shareholder  of  the  banks  (the  new  BRRD  framework  foresaw  bridge  banks 
managed by the resolution authority)147. 
Table 3.3 shows the total resolution costs for the Greek banks since the beginning of the 
crisis. 

Table 3.3 

Resolution costs for the Greek banks, 2011-2015 

Bank 

Date of 
resolution 

Resolution 
tool 

Acquirer 

Resolution 
cost  

(EUR mln) 

Proton Bank 

9 October 2011  Bridge bank 

- 

1,112 

T-Bank 

7 December 
2011 

Sale of Business  Hellenic Post 

677 

Bank 

Cooper. Lesvou-
Limnou 

Achaiki 
Cooperative 

23 March 2012  Sale of Business  National Bank of 

56 

Greece 

23 March 2012  Sale of Business  National Bank of 

209 

Greece 

Cooper. of Lamia  23 March 2012  Sale of Business  National Bank of 

55 

Greece 

AΤΕ-Bank 

27 March 2012  Sale of Business  Piraeus Bank 

7,471 

Hellenic Post 
Bank 

18 January 
2013 

Bridge bank 

3,733 

First Business 
Bank 

10 May 2013 

Sale of Business  National Bank of 

457 

Greece 

Probank 

26 July 2013 

Sale of Business  National Bank of 

563 

Cooper. of West. 
Macedonia 

8 December 
2013 

Cooperative of 
Evia 

8 December 
2013 

Greece 

Sale of Business  Alpha Bank 

95 

Sale of Business  Alpha Bank 

105 

144 Bank of Greece, 2013. The Chronicles of the great Crisis: Bank of Greece 2008-2013 
145  For  instance,  under  the  BRRD,  junior  bondholders  and  shareholders  should  normally 
face losses before taxpayers’ money is injected into a bank (8 per cent of a failed bank’s 
liabilities  to  be  wiped  out  before  public  support  is  given).  DG  Comp  can  waive  this 
requirement  in  certain  circumstances  when  financial  stability  could  be  at  risk  —  notably 
when  the  amount  of  public  support  required  is  relatively  small  and  banks  have  already 
significantly reduced the shortfall by securing private investment. 
146 World Bank, 2016. Bank Resolution and Bail-In the EU. Selected studies pre and post 
BRRD. 
147 Ibidem 

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Bank 

Date of 
resolution 

Resolution 
tool 

Acquirer 

Resolution 
cost  

(EUR mln) 

Cooperative of 
Dodecanisou 

8 December 
2013 

Sale of Business  Alpha Bank 

259 

Panellinia Bank 

17 April 2015 

Sale of Business  Piraeus Bank 

297 

Cooperative of 
Peloponnese 

18 December 
2015 

Sale of Business  National Bank of 

93 

Greece 

TOTAL 

Source: BoG 

15,191 

Regarding the size of the financial envelopes under the three EAPs devoted to the financial 
sector  specifically,  EUR  10  bln  under  the  first  EAP  was  assigned  initially  to  deal  with 
potential capital shortfalls, of which EUR 5 bln was estimated to cover the banks’ losses 
while  the  remaining  EUR  5  bln  was  meant  to  constitute  a  buffer.  However,  given  the 
expected  losses  related  to  the  PSI  and  continuous  increase  in  NPLs,  the  envelope  was 
subsequently increased to EUR 50 bln under the second EAP. Of the EUR 50 bln earmarked 
under the second EAP for banks’ recapitalisation and resolution, half was allocated to offset 
the expected PSI-related losses, and the other half to resolve unviable banks and tackle 
the existing and future credit losses148. Under the third EAP, an additional buffer of EUR 25 
bln  was  envisaged  for  bank  recapitalisation  and  resolutions.  All  in  all,  while  the  initial 
envelope of EUR 10 bln under the first EAP turned out to be eventually insufficient given 
subsequent  PSI  and  credit  losses,  the  size  of  financial  envelopes  under  the  second  and 
third EAP were appropriate. Of EUR 75 bln assigned for financial sector envelope in Greece 
that corresponded to nearly 40 per cent of Greek GDP, EUR 45.1 bln, or 60 per cent of the 
available envelope, was eventually used (Figure 3.16).   

Figure 3.16  Public funding foreseen and used in the banking sector 

Source: European Commission 

Note: GDP share for the respective countries corresponds to the GDP share as of the second year 
of a given program e.g. GDP as of 2011 for Greece. 

148 IMF, 2017. Greece: Ex-Post Evaluation of Exceptional Access Under the 2012 Extended 
Arrangement. Country Report No. 17/44 

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Overall,  as  a  result  of  subsequent  recapitalisations  and  resolutions,  the  Greek  banking 
system experienced one of the largest restructuring and consolidation processes in Europe. 
The number of banks with Greek banking authorisation in 2008 shrank from 36 to 18 by 
the end of 2015, and to 15 by the end of 2018. The  total number of  branches fell from 
3,750 in 2008 to around 1,979 in 2018, while the total number of employees in the banking 
sector declined from nearly 70,000 in 2008 to around 39,820 in 2018. Market share of the 
four systemic banks (in terms of assets’ share) increased substantially and reached 94 per 
cent in 2018 (compared to 70 per cent in 2008), one of the highest concentrations in the 
EU. Foreign banks have an insignificant market share, with all but one foreign retail banks 
having divested from Greece149.  

3.3.2.2  Assessment of the effectiveness of recapitalisation and resolution in 

restoring adequate capitalisation  

The  effectiveness  of  the  recapitalisations  and  resolutions  in  restoring  adequate 
capitalisation of Greek banks can assessed on a number of criteria, including:  

  Whether  the  approach  to  recapitalisation  and  resolution  was  adequate  and  the 

assessment of capital needs was sufficiently prudent; 

  Whether  banks’  capital  bases  were  restored  as  a  result  of  recapitalisation  and 

resolution; 

  Whether one of the  overarching objectives of the restructuring process to protect 

the private depositors and to minimise market disruption was met;  

  Whether recapitalisation and resolution were completed with the minimum cost to 

the state and maximum involvement of the private sector.  

Adequacy of the approaches to recapitalisations and resolutions and the 
assessment of capital  

Placing credit institutions on a sound footing following either individual or systemic financial 
turbulences is a complex and pressing task.150 Given the scale and the context of the task 
of  restoring  the  adequate  capitalisation  of  banks  in  the  Greek  context  faced  by  the 
authorities and the three institutions, the task was exceptionally challenging.  

The literature and views of the interviewees all pointed to the high degree of fragmentation 
and some capacity surplus in the Greek banking system in the aftermath of the crisis, with 
some banks insufficiently sound or properly managed to warrant their operating in a well-
functioning  and  competitive  market151.  The  Greek  authorities  and  the  three  institutions 
agreed  an  approach152  to  restructuring  the  Greek  banking  system  that  hinged  on  the 
safeguarding of four systemically important ‘core banks’ with viable business models and 
a track record of successful provision of critical services. All other banks were still offered 
the  time  to  raise  the  necessary  private  capital.  As  a  result,  the  weakest  and  poorly 
managed banks would be closed so that only sufficiently sound operations would get state 
support.  

An outcome of the approach to anchor the first recapitalisation in the four ‘core banks’ was 
a high concentration in the banking sector following the recapitalisations. With hindsight, 

level 

facts  and 

149  HBA,  2019.  Greece  banking  sector: 
https://www.ebf.eu/greece/ 
150  European  Commission,  2017.  Coping  with  the  international  financial  crisis  at  the 
national 
at: 
European 
https://ec.europa.eu/info/publications/coping-international-financial-crisis-national-level-
european-context_en 
151  See  for  instance,  Bank  of  Greece,  2014.  Chronicles  of  the  Great  Crisis:  the  Bank  of 
Greece 2008-2013. 
152 The features of the strategic (viability) assessment of the BoG incorporated in the March 
2012 MoU was part of it  

figures.  Available  at: 

Available 

context. 

a 

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however, the selection of these four banks and overall approach was indeed appropriate. 
Four ‘core banks’ accounted for a large share of the market and their robustness translated 
into the robustness of the whole system. Also, given their market share at the time (the 
fifth largest bank was significantly smaller than any of the four ‘core banks’, had a weak 
capital  base  and  its  management  had  raised  concerns),  the  inclusion  of  any  additional 
banks could not be rationalised. Virtually all banks turned out to be insolvent after the PSI, 
and  lack  of  prioritisation  in  the  restructuring  would  have  made  the  process  even  more 
complex and (possibly) costly. In addition, the threshold was not simply based on size but, 
rather, on the magnitude of the state aid required and the potential for the given bank to 
divest  non-core  assets,  restructure  its  business  model  and  return  to  viability.  The 
appropriateness  of  the  overall  approach  was  almost  unanimously  supported  by  the 
interviewees across all consulted organisations. 

The ECA evaluation153 found that the viability assessment through which the BoG selected 
four systemic ‘core banks’ and then assessed the remaining domestic banks for viability 
and thus eligibility for the first recapitalisation using programme funds was not sufficiently 
transparent (although there was no condition on this in the programme and the choice of 
process  was  a  matter  under  the  national  supervisory  authority’s  discretion).  Two 
interviewees agreed with this assessment but the limited budget of this study prevented 
further examination.   

In  terms  of  the  framework  guiding  the  design,  at  the  time  the  first  recapitalisation  and 
resolution  was  conceptualised  and  implemented,  principles/guidelines/resolution  tools 
were substantially less developed than at the time of the third recapitalisation given the 
absence  of  the  comprehensive  EU  framework  established  by  the  Bank  Recovery  and 
Resolution Directive (BRRD). The key laws guiding the first recapitalisation were based on 
HFSF  Law  3864/2010  and  its  subsequent  amendments  through  Laws  4111/2013, 
4138/2013,  4144/2013  and  4152/2013154.  By  the  time  the  third  recapitalisation  was 
designed and implemented, more specific state aid guidelines were in place, along with the 
BRRD. While the lack of comprehensive guidelines and resolution tools during the first and 
second recapitalisations did not offer the authorities and the institutions a clear path on 
how to proceed, interviewees from the  EC, HFSF and BoG who were directly involved in 
the  restructuring  process  acknowledged  that  this  allowed  considerable  flexibility  in 
designing the first and second recapitalisations and resolutions, something that would not 
have been possible once more specific and stringent provisions were introduced, including 
those under the BRRD.     

Furthermore, unlike in other program countries, the Greek banking sector went through 
three  recapitalisations  rather  than  one  before  adequate  capitalisation  was  eventually 
restored. This may raise the question whether the capital needs were underestimated.   

The  IMF  evaluation  of  its  2012  Extended  Arrangement  stated  that:  ‘With  the  benefit  of 
hindsight,  the  programme  could  have  done  more  to  address  several  potential 
vulnerabilities  in  a  timely  manner.  Bank  capital  needs  assessment  exercises  could  have 
used more conservative estimates for the scale and severity of credit losses, reducing the 
need  for  subsequent  recapitalisations’155.  The  suggestion  that  insufficiently  prudent 
assumptions were used for capital needs under the first two recapitalisations because of 
available  funding  was  also  highlighted  by  the  ECA  evaluation.  Figure  3.17  shows  the 
discrepancies between some BoG and EBA projections and actual outcomes.  

153 European Court of Auditors. The Commission's intervention in the Greek financial crisis. 
SR 17. 
154 
Report 
http://www.hfsf.gr/files/HFSF_activities_Jan_2013_Jun_2013_en.pdf 
155 IMF, 2017. Greece: Ex-Post Evaluation of Exceptional Access Under the 2012 Extended 
Arrangement. Country Report No. 17/44 

Available 

HFSF. 

HFSF, 

2013. 

the 

at: 

of 

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Figure 3.17  Greek banking system impairment charges, in EUR bln 

Source: Bank of Greece; European Banking Authority; SNL; and IMF staff calculations 

Notes:  1:  Does  not  include  impairments  related  to  losses  on  Greek  debt  holdings  under  the  PSI 
scheme; 2: Annualised unprovisioned credit losses projected by the Bank of Greece in 2012 capital 
needs assessment (based on end-2011 data), 3: Annualised unprovisioned credit losses projected 
by the Bank of Greece in 2014 stress test for the period from end-June 2013 to end-2016 (based on 
end-June 2013 data), 4: 2014 EBA stress tests projected cumulative impairments under the adverse 
scenario for 2014-2016 period, annualised (based on end-2013 data) 

One relevant aspect is the approach to the analysis of the capital needs, led by BoG. While 
the  direct  impact  of  the  PSI  was  relatively  straightforward  to  estimate  (see  Section 
3.3.1.3), estimations of the credit loss projections for banks - the key parameter feeding 
into the derivation of the final capital needs at bank level  - were commissioned from an 
external consulting firm of recognised standing (BlackRock), as ensuring the independence 
and transparency of the estimates was, rightly, of paramount importance. 

Nevertheless, there were some material differences in views between the authorities and 
the  three  institutions  on  the  estimates  of  capital  needs,  in  particular  for  the  second 
recapitalisation  (see  3.3.2.1),  causing  some  delays  and  increasing  uncertainty  over  the 
appropriate  course  of  action156.  One  interviewee  pointed  out  that  the  consistently  thin 
capital  base  of  banks  curtailed  incentives  to  resolve  the  NPL  issue  (write-off  of  an  NPL 
backfires in the reduction of a bank’s capital base), and consequently, to lend to the real 
economy.   

Almost all of the stakeholders interviewed here believe that the consistent underestimation 
of  the  length  and  magnitude  of  the  recession  (including  the  three  institutions’  own 
projections – see Figure 3.2) was a root cause and major flaw of the assessment of the 
banks’  capital  needs.  While  there  was  consensus  that  macroeconomic  uncertainty  and 
consistent shortfalls in expectations for economic recovery during the first two programmes 
intensified  the  challenges  (e.g.  persisting  NPLs)  faced  by  the  financial  sector  experts  in 
assessing capital adequacy, the impact can be viewed as two-way. Looming financial sector 
uncertainty  led  to  a  longer  and  deeper  than  expected  credit  contraction,  which  in  turn 
hampered  the  prospects  for  economic  recovery  through  investments  enhancing  a  swift 
reallocation of resources. In addition, overly optimistic views of the real value of collateral 
underpinning  bank  loans’  and  major  obstacles  in  addressing  NPL  issues  swiftly  and 
effectively (see Section 3.4) were also highlighted by some interviewees.  

Finally, while the Greek banking sector was subject to three recapitalisation exercises, it is 
only  fair  to  consider  whether  the  authorities  and  institutions  could  have  reasonably 

156 See for instance: Financial Times, 24th February 2014. Greece in banking sector stand-
off with bail-out lenders. Available at: https://www.ft.com/content/90df6be6-9ca7-11e3-
b535-00144feab7de  

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anticipated some key factors that eventually determined the banks’ capital needs. It seems 
that exogenous shock, in the form of uncertainty brought by the prospect of early elections 
in late 2014, and the subsequent formation of the government led by radical left SYRIZA 
in January 2015, with all the attendant implications - including deposits outflows triggered 
by Grexit fears - could hardly have been foreseen when assessing capital needs under the 
second recapitalisation. In short, it is conceivable, that a third recapitalisation would not 
have  been  necessary  had  Greece  not  experienced  political  turmoil  in  2015.  The  Greek 
economy was on the recovery path in the first half of 2014, while the political crisis that 
started  in  December  2014  and  unfolded  in  the  first  half  of  2015  did  not  allow  the 
programme to be closed and led to freezing of ELA, imposition of bank holidays followed 
by capital controls, and massive deposit outflows. This hypothesis has been supported by 
interviewed BoG and ESM stakeholders, who also cited the results of the ECB Europe-wide 
stress  tests  conducted  in  October  2014.  European  Commission  staff  expressed  less 
certainty that the third recapitalisation could have been avoided had there not been political 
turbulence  in  2015,  but  noted  that  the  capital  injection  could  have  been  smaller  and 
executed solely with the private sources.     

Restoration of banks’ capital bases as a result of recapitalisation and resolution 

As a result of the PSI, the capital base of most of the Greek banks was entirely wiped out 
in 2012, while the protracted – and unprecedented - recession fuelling the rise in NPLs and 
Grexit fears continued to erode banks’ capital bases in the following years. 

Despite  this  challenging  (and  continuously  uncertain)  backdrop,  the  financial  stability  of 
the  system  was  preserved,  with  14  credit  institutions  resolved  and  four  systemically 
important banks recapitalised. This was effected without the major disruption that would 
have been caused by disorderly bankruptcies or market jitteriness due to poor design or 
lack  of  swift  and  transparent  implementation  (even  though  one  must  also  acknowledge 
that that during several years banks served the purpose of a funding instrument towards 
the  real  economy  to  limited  extent  only).  This  should  be  recognised  as  a  major 
achievement, despite banks’ ongoing vulnerability.   

Three rounds of recapitalisation with capital injections reaching EUR 68 bln (or EUR 85 bln 
including deferred tax credits) kept the CET 1 capital adequacy ratio above the minimum 
threshold  (Figure  3.18).  The  uplift  in  the  CET  1  was  particularly  crucial  under  the  first 
recapitalisation,  where  the  ratio  of  two  out  of  four  systemic  banks  was  negative157. 
Following the third recapitalisation, the CET 1 capital adequacy ratio reached circa 15 per 
cent by December 2015158. More recently, the CET 1 ratio rose to 15.8 per cent in 2018, 
compared to 14.4 per cent for the Eurozone average159. The EU-wide stress tests conducted 
by the EBA in 2018160 showed that Greek banks kept buffers at a sufficient level to absorb 
additional credit losses. 

IMF,  2017.  Ex  post 

157 As of December 2011, the CET 1 capital ratio of NBG and Piraeus Bank were -2.8 and -
7.3 per cent, respectively, while those of Alpha Bank and Eurobank stood at 8.1 and 12.4 
per cent, respectively. (Data as per financial statements published by all four banks.) 
158 
https://www.imf.org/en/Publications/CR/Issues/2017/02/07/Greece-Ex-Post-Evaluation-
of-Exceptional-Access-Under-the-2012-Extended-Arrangement-Press-44636 
159  EBA,  2018.  EU-wide  stress-tests.  Available  at:  https://eba.europa.eu/eba-publishes-
2018-eu-wide-stress-test-results 
160  EBA,  2018.  EU-wide  stress-tests.  Available  at:  https://eba.europa.eu/eba-publishes-
2018-eu-wide-stress-test-results  

evaluation  of  EEF  programme.  Available  at: 

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Figure 3.18  CET 1 capital ratio of the Greek banking system, in % 

Source: IMF calculation 

Banks’ liquidity also improved, limiting their dependence  on BoG  funding,  they regained 
access to the interbank market, started issuing securitisations and covered bonds, and, by 
2018, three out of four ‘core banks’ were assigned an investment grade rating161. However, 
while  the  stability  of  the  system  was  restored,  banks’  profitability  remained  weak, 
consumer deposits increased only marginally between the end of 2015 and 2018, credit 
supply was feeble, with loan rates to NFCs around 2 percentage points higher than similar 
Eurozone  loans162,  and  NPLs  remained  extremely  high  (49  per  cent  as  of  March  2018) 
remaining a critical unresolved issues since the beginning of the crisis.  

It should be noted that the recapitalisations raised the private capital needed, despite an 
exceptionally  challenging  environment.  According  to  the  IMF,  the  private  sector 
participation  in  the  first  recapitalisation  was  stronger  than  envisaged163.  The  second 
recapitalisation  took  place  with  entirely  private  funds,  while  the  participation  of  private 
investors in the third recapitalisation was in line with expectations. Had it been otherwise, 
the  size  of  the  state’s  injections  could  have  been  higher,  increasing  the  final  bill  and 
complicating subsequent privatisation. In an extreme scenario, with no HFSF in place and 
little  private  interest,  the  Ministry  of  Finance  might  have  needed  to  take  on  the  shares, 
without the framework, enough expertise and inclination to interfere in the functioning of 
banks, ultimately possibly  leading to higher costs borne by Greek taxpayers. 

Delphi survey results show that more than 50 per cent of respondents viewed each of the 
three  capitalisations  as  effective/very  effective,  with  the  share  highest  for  the  second 
recapitalisation. None of the respondents perceived the recapitalisations as ineffective.  

161 BIS, 2018. Yannis Stournaras: Lessons from the financial crisis and challenges for the 
Greek banking sector. Available at: https://www.bis.org/review/r181114d.htm  
162  ESM,  2020.  Restoring  growth  and  financial  stability:  how  Greek  banks  responded. 
Available  at:  https://www.esm.europa.eu/publications/restoring-growth-and-financial-
stability-how-greek-banks-contributed 
163 IMF, July 2013. Greece Country Report No. 13/241. 

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Figure 3.19  Delphi survey – effectiveness of recapitalisations in restoring adequate 

capitalisation of Greek banks 

Source: Delphi survey, N=30 

Among  the  respondents  who  perceived  one  or  more  recapitalisations  as  somewhat 
effective, justifications were typically that:  

  Three recapitalisations took place, suggesting that the first two fell short of solving 
the  problem,  although  the  third  was  largely  a  consequence  of  domestic  political 
upheaval and rising Grexit fears; 

  Recapitalisation  did  not  restore  adequate  capitalisation,  as  the  issue  of  NPLs  was 

not resolved; 

  The political need to constrain the use of official money led to too-modest capital 

injections vis-à-vis the needs of banks.   

Protection of private depositors  

Throughout the 2010-2015 period, high uncertainty and the outflows of deposits continued 
to erode banks’ capital bases, widening the gap between the funding needed to restore the 
stability  of  the  system  and  the  funding  available.  In  that  context,  applying  a  haircut  to 
private  depositors  was  one  potential  option.  In  fact,  that  option  was  used  in  the 
restructuring of the banking sector in Cyprus, where uninsured depositors suffered losses 
of  EUR  4  bln  that,  in  turn,  increased  the  share  of  strategic  defaulters  in  NPLs,  reduced 
confidence, and created a general perception of unfairness of burden-sharing164.  

However, in the Greek context, all of the individual depositors were preserved, irrespective 
of their size and type. Five years after the last recapitalisation, it is easy to see this as a 
fairly  obvious  outcome,  given  the  central  role  of  uncertainty  and  deposits  outflows. 
However, the pressure to minimise the costs of restructuring had to be reconciled with the 
detrimental effect on banks’ capital bases as a result of continuous underestimating of the 
length and magnitude of the recession that in turn had detrimental effect on banks’ capital 
base. The decision to stick to the policy decision to fully protect depositors while resolving 
14 non-viable banks and recapitalising four others was not an easy one and should not be 
taken for granted.   

According to Delphi survey respondents, all three recapitalisations were effective overall in 
protecting  depositors.  The  combined  share  of  respondents  who  stated  that  the 
recapitalisation was effective/highly effective was lowest for the third recapitalisation (46 
per cent).      

164 European Commission, 2019. Ex-post evaluation of the Economic Adjustment Program: 
Cyprus 2013-2016.   

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Figure 3.20  Delphi survey – effectiveness of recapitalisations in protecting depositors 

Source: Delphi survey, N=30  

Costs of recapitalisation and resolution  

In line with the principle to maximise the contribution of private investors to recapitalised 
banks, the design of the first recapitalisation relied, inter alia, on the use of warrants as 
an  additional  incentive  to  private  capital,  given  the  negative  equity  of  the  banks  in 
question. 

According to the ECA evaluation of the first two EAPs165, in the context of the first bank 
recapitalisation,  the  Greek  authorities  opted  for  warrants  without  comprehensively 
identifying some of the associated risks, e.g. their potential impact on bank share prices. 
The ECA assessed the form of warrants as ‘excessive’.  

Yet,  some  literature  notes  that  this  state  subsidy  was  necessary  because  of  high 
uncertainty and the insolvency of Greek banks166. Foreign investors were shying away from 
Greek assets, while the capacity of domestic investors was limited. In addition, judging by 
the  size  of  the  capital  injection  from  the  private  sector  (EUR  3.1  bln)  versus  the  state/ 
HFSF  (EUR  25.5  bln),  use  of  warrants  does  not  seem  to  have  translated  into  private 
investors  flocking  in  to  buy  banks’  shares.  More  generally,  stakeholders  across  all 
institutions, including those directly involved in the process of restructuring banks, agreed 
that  gauging  the  level  of  private  demand  -  in  particular  at  the  outset  of  the  first 
recapitalisation - was an inherently difficult exercise. An interview with  representatives of 
three institutions who were directly involved in the process stated that the goal to maximise 
the involvement of private shareholders was driven by the  fact that the institutions had 
anticipated  that  more  stress  tests  would  be  needed,  with  the  possibility  of  further 
recapitalisations. Limiting state involvement was therefore a way of preserving state funds.      

Restructuring the Greek banks came at a very high cost. Under the third recapitalisation, 
the choice of recapitalisation with no effective minimum price set succeeded in minimising 
new  taxpayer  funding  at  the  cost  of  complete  dilution  of  the  Greek  taxpayers’  existing 
stake in the four systemic banks. The EUR 25.5 bln injected by HFSF in banks in May 2013 
had  already  shrunk  significantly  ahead  of  the  third  recapitalisation,  with  Grexit  fears 
triggering deposit outflows of EUR 45 bln between June 2013 and June 2015 (a decrease 
of 26 per cent) and a sharp increase in NPLs to EUR 107 bln (55 per cent of GDP) by June 
2015. Valued at the share prices of the 2014 recapitalisation, the HFSF’s stake in the four 
banks  was  worth  EUR  18.5  billion  in  the  spring  of  2014.  By  the  end  of  the  year,  after 

165 European Court of Auditors, 2017. The Commission's intervention in the Greek financial 
crisis. 
166 MIT, 2016. Beyond Austerity – Reforming Greece Economy. 

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SYRIZA called for snap elections, the value of the HFSF’s stake had fallen to EUR 11.6 bln. 
Following lengthy negotiations with creditors after SYRIZA won the January 2015 elections, 
the  share  value  fell  further  to  EUR  7.5  bln  by  June  2015,  when  capital  controls  were 
imposed. By that time, private investors had also incurred large losses. Finally, valued at 
the price of the third recapitalisation, in November 2015, the shares acquired in 2013 were 
worth EUR 747 mln, dramatically reducing the state’s holding in each of four banks. For 
instance, the HFSF ownership in Alpha Bank decreased from 83.7 per cent in 2013 to 11 
per cent in 2015, while those in Eurobank fell from 95.2 per cent to just 2.4 per cent.  

Overall,  given  the  negative  equity  of  virtually  all  banks  following  the  PSI,  it  was  well 
understood  that  the  state  would  need  to  incur  losses  to  attract  private  investors.  The 
second  recapitalisation  took  place  using  entirely  private  funds.  The  ongoing  recession, 
Grexit fears and the resulting deposit outflows saw both the state and private investors 
absorb  large  losses  until  the  third  recapitalisation.  For  some  interviewees,  however,  the 
dilution of the state’s stake came at too high a price. A similar perspective can be found in 
some of the literature. According to the Centre for International Governance Innovation, 
the  third  recapitalisation  of  Greek  banks  using  a  greater  amount  of  public  funds  and/or 
contingent capital instruments that reduced the possibility of new share issuance, would 
have limited the dilution of HFSF’s existing shares  — and ultimately reduced the losses for 
Greek taxpayers167.  

3.4  Non-Performing Loans (NPLs) 

3.4.1  Most important reasons behind the large and persistent increase in NPLs 

in Greece 

The following section addresses study question 4a. 

Question 4a: What were the most important reasons behind the large and persistent 
increase in NPLs in Greece?  

3.4.1.1  Main reasons behind the large and persistent NPLs in Greece 

As the crisis unfolded, there was a sharp deterioration in the quality of the Greek banks’ 
loan books. The share of non-performing to total loans increased by 43 per cent from 5.7 
per cent at the end of 2008 to 48.5 per cent at the end of 2016 (Figure 3.21). The absolute 
value of NPLs peaked at EUR 106.5 bln at the end of 2015, representing 60 per cent of 
GDP. By way of context, in about 70 per cent of crises in high-income countries, peak NPLs 
never rose above 20 per cent of total loans outstanding and the 11 per cent median-value 
of peak NPLs168. In Greece, NPLs peaked at 49 per cent of total loans outstanding in 2016 
(BoG data) and 41.3 per cent in 2017 (ECB data)169.  

167 Centre for International Governance Innovation, 2016. How the SYRIZA led government 
privatised  Greek  banks.  Available  at:  https://www.cigionline.org/articles/how-syriza-led-
government-privatized-greek-banks 
168 Laeven and Valencia (2018) Systemic Banking Crises Revisited 
169  The  data  from  ECB  are  on  a  consolidated  bank  group  level,  i.e.  it  includes  bank 
subsidiaries (banks abroad, leasing/factoring companies domestically), whereas BoG data 
is on the individual bank level. Moreover, the data from ECB include all debt instruments, 
whereas BoG data concern loans only. Both data series are accurate, BoG series is used 
for  NPL  monitoring  targets  set  for  Greece,  but  for  the  purposes  of  cross-country 
comparisons ECB data are more appropriate. 

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Figure 3.21  Evolution of NPL ratio, Real GDP and NPL as % of GDP 

Source: Bank of Greece, Eurostat 

NPLs reached historically high levels across all categories of loans. The NPL problem was 
not restricted to a single sector or a particular category of loans. NPLs rose dramatically 
across  both  the  household  as  well  as  the  corporate  sector.  The  highest  NPL  ratio  was 
recorded for consumer loans at the end of 2015 (63 per cent). The NPL ratio for business 
loans touched almost 50 per cent in 2016, while the NPL ratio for mortgages was close to 
45  per  cent  in  2018  (Figure  3.22).  In  terms  of  value,  more  than  half  of  the  Greek  NPL 
exposures were in the business sector (Figure 3.23). Comparatively speaking, more than 
80 per cent of bank NPLs were in the corporate sector in Italy, while mortgages accounted 
for the highest share of NPLs in Ireland and Spain. 

Figure 3.22  Figure: Evolution of NPL ratio by sector 

Source: Bank of Greece. The bars show overall NPL ratio (for all sectors combined) 

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-0,3-4,3-5,5-9,1-7,3-3,20,7-0,4-0,21,51,91,9-10,00,010,020,030,040,050,060,070,0200820092010201120122013201420152016201720182019NPL ratioReal GDP growth rateNPL as % of GDP63Consumer loans44,5Mortgages49,7Business loans0102030405060708090100200220032004200520062007200820092010201120122013201420152016201720182019 
 
 
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Figure 3.23  Figure: Evolution of NPLs by sector 

Source: Bank of Greece 

The deepening recession and ongoing political uncertainty were the main factors behind 
the  sharp  rise  in  NPLs  since  the  first  quarter  of  2012.  Several  studies  examining  the 
determinants of Greek NPLs have concluded that macroeconomic conditions and political 
uncertainty were the main drivers behind the large and persistent rise in NPLs during the 
crisis years170. Stakeholder interviews and the results of the Delphi survey corroborate the 
findings  of  the  literature  review.  All  interviewees  and  97  per  cent  of  the  Delphi  survey 
respondents  highlighted  the  length  and  depth  of  the  recession  as  the  main  factor 
contributing to the growing stock of NPLs. The recession (and the resultant high rates of 
unemployment) had a huge negative effect on NPLs, as it reduced the ability of borrowers 
to  service  their  debts.  Unemployment  rate  rose  from  7.75  per  cent  to  over  27  per  cent 
between  2008  and  2013,  while  GDP  per  capita  in  real  terms  fell  by  almost  26  per  cent 
during the same period.  

The persistently high level of NPLs were also a significant drag on economic activity, not 
only eroding the profitability and solvency  of banks, but also severely constraining their 
capacity  to  lend,  thus  creating  a  vicious  cycle  (high  levels  of  NPLs  reduced  banks’ 
profitability, thus preventing them from lending more to businesses and consumers, which 
in turn slowed down economic growth).  

170  Bank  of  Greece,  2017.  Working  paper  on  the  determinants  of  NPLs:  lessons  from 
Greece. See also the collection of essays in Non-Performing Loans and Resolving Private 
Sector Insolvency 
Experiences from the EU Periphery and the Case of Greece 

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Figure 3.24  Delphi survey - To what extent did the following factors contribute to the 
high and persistent level of NPLs among Greek banks during 2010-2018? 

Source: Delphi survey, N=30 

Greek  banks  lacked  the  capacity  to  deal  with  the  growing  volume  of  NPLs.  The  banking 
system  had  no  capital  buffers  to  absorb  increasing  losses.  According  to  an  evaluation 
conducted by the ESM171, the Greek banks were ineffective at working out their large NPL 
stocks.  This stemmed from a lack of expertise and weak institutional set-up, such as, a 
lack of adequate NPL workout divisions within a bank and inefficient internal reporting lines 
to  banks’  credit  committees.  Banks’  initial  response  to  engage  in  short-term  loan 
modifications (arrears capitalization, reduced payments, etc.) was ineffective. Most banks 
had  low  standards  for  borrower  qualification  and  loan  structure,  with  redefault  rates  on 
such  modifications  close  to  60  percent  within  one  year.  Restructurings  proved  to  be 
inefficient, and NPLs increased further172.  

Legislative changes contributed to a deterioration of payment discipline and the persistence 
of high mortgage NPLs by removing the threat of foreclosure. Legislative changes such as 
the  blanket  moratorium  on  primary  residence  auctions  and  the  abuse  of  foreclosure 
protection further exacerbated the NPL problem173. In 2010, Greece introduced the Katseli 
law to protect vulnerable borrowers by preventing creditors from foreclosing on primary 
residences (see Box 3.10).  

The weak payment culture in Greece exacerbated banks’ non-performing exposures. ECB 
estimated that about 30 per cent of debtors who stopped servicing mortgage loans were 
strategic  defaulters  who  took  advantage  of  the  moratorium  and  inefficiencies  of  the 
insolvency process174. Another study, using proprietary data from a large bank showed a 
similar estimate, with 28 per cent of defaults in primary residence mortgages found to be 

171 ESM (2017). Evaluation of EFSF/ESM programmes. 
172 IMF (2019a). IMF Country Report No. 19/341 – Greece: selected issues. 
173 Stournaras, Y., “The Greek economy 10 years after the crisis and lessons for the future 
both  for  Greece  and  the  Eurozone,”  June  28,  2019,  European  Court  of  Auditors, 
Luxembourg, Speech 
174 ECB (2016) Stock-take of national supervisory practices and legal frameworks related 
to NPLs 

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strategic175. Using loan payment data of Greek firms, another study176 found that find that 
one  out  of  six  firms  with  non-  performing  loans  was  a  strategic  defaulter.  Some  press 
reports  go  as  far  as  suggesting  that  strategic  defaulters  are  responsible  for  the  non-
payment of some 35 per cent of bad corporate loans177.  

A lengthy and inefficient judicial system and the lack of a secondary market (for sale of 
NPLs) hampered the resolution of NPLs. Inefficiencies in the court system allowed debtors 
to  benefit  from  a  blanket  stay  on  creditor  action  for  years  before  their  cases  would  be 
heard. These legal shortcomings prevented the restructuring of non-performing mortgage 
loans  and  created  significant  opportunities  for  strategic  default178.  97%  of  the  Delphi 
survey respondents indicated lengthy judicial processes as a factor that contributed to the 
NPL problem. Several interviewees also highlighted the lack of a secondary market for NPL 
sales as a problem. Secondary markets facilitate resolution of NPLs by enabling banks to 
sell  off  to  third  party  investors  and  credit  servicers  (debt  collectors).  This  relieves  the 
burden  on  banks  of  debt  collection  and  collateral  foreclosure.  By  leveraging  outside 
financing and expertise, secondary markets also help improve recovery of bad loans. 

Legal  infrastructure  for  NPL  resolution  was  missing.  Apart  from  the  lack  of  a  secondary 
market  for  NPLs,  there  were  several  legal  impediments  and  constraints  e.g.  lack  of  an 
appropriate insolvency framework, absence of out of court settlement systems, lack of an 
electronic  auction  system,  non-banks  could  not  purchase  NPLs,  banks  could  not  create 
black  list  of  defaulters    etc.  Lack  of  political  will  and  vested  interests  stifled  progress  in 
these areas - see next section.  

Loose  credit  conditions  prior  to  the  crisis  and  weak  governance  are  also  said  to  have 
contributed  to  the  NPL  problem.,  Several  interviewees  and  Delphi  survey  responses 
suggest  that  weak  corporate  governance  and  loose  credit  conditions  played  a  role  in 
contributing  to  the  build-up  of  NPLs.  There  was  rapid  credit  expansion  when  Greece 
adopted the Euro. Corporate sector credits grew by a factor of 2.6 between 2001 and 2008, 
while household lending grew almost five-fold during this period - Figure 3.25. Empirical 
studies,  however,  found  no  evidence  to  suggest  that  NPLs  were  a  result  of  overly 
aggressive lending practices by Greek banks during the pre-crisis years nor any systematic 
efforts to boost current earnings by extending credit to lower credit quality clients179. One 
reason for this could be Greece’s relatively low overall private sector indebtedness at the 
start of the crisis (Figure 3.26). Besides, as illustrated in Figure 3.22, the NPL ratio shot 
up as the recession deepened.   

175 Artavanis N. and Spyridopoulos I. (2019) Foreclosure Moratorium and Strategic Default. 
176 Asimakopoulos, I., Avramidis, P.K., Malliaropulos, D. and Travlos, N.G. (2017) Micro-
behavioral  Characteristics  in  a  Recessionary  Environment:  Moral  Hazard  and  Strategic 
Default 
177 Papadoyiannis, Y. (2018) Strategic defaulters are now believed to account for 40 pct of 
NPLs, 
at: 
https://www.ekathimerini.com/226601/article/ekathimerini/business/strategic-
defaulters-are-now-believed-to-account-for-40-pct-of-npls 
178 IMF (2019a) op cit 
179 See previous notes. See also Hellenic Observatory (2016). Explaining Non-Performing 
Loans in Greece: A Comparative Study on the Effects of Recession and Banking Practices 

Ekathimerini, 

10.03.2018. 

Available 

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Figure 3.25  Credit to domestic non-MFI residents by domestic MFIs excluding the Bank 
of Greece ((outstanding amounts at end of period in EUR bln) 

Source:  Bank  of  Greece.  The  chart  excludes  other  loans  to  Individuals  and  private  non-profit 
institutions (due to relatively small  share)  and loans to sole proprietors (data only available from 
2010 onwards) 

Figure 3.26  Private debt as percentage of GDP (based on financial sector balance 

sheet), 2008 

Source: DG FISMA 

Overall, the scale and gravity of the NPL problem was underestimated by both the banks 
and the authorities. Firstly, the depth and intensity of the recession, as well as its impact 
on NPLs, was underestimated by both the authorities and the banks alike. Secondly, the 
impact of the lack of a functioning legal system on NPL resolution was underestimated. The 
scale of strategic defaulters and the legal obstacles involved in addressing this issue (as 
well as the NPL issue more widely) only became evident as the crisis unfolded. In its Staff 

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Report  accompanying  the  July  2017  request  from  Greek  authorities  for  SBA180,  the  IMF 
reports  ‘..staff is concerned that the strategy for dealing with NPLs in effect relies on the 
extremely optimistic assumption that banks can gradually grow out of this problem.’ 

3.4.2  Effectiveness of the programme policies in addressing the NPLs 

The following section addresses study question 4b. 

Question 4b: To what extent were programme policies adequate in limiting the initial 
build-up of the NPL portfolio, given the underlying conditions? Subsequently, were 
programme policies adequate in facilitating effective NPL resolution and reduction?  

In order to respond to this study question, this section examines the following aspects: 

  Key measures introduced to tackle the NPLs issue; 

  Adequacy of program polices to tackle effectively the NPLs resolution and reduction. 

3.4.2.1  Key measures introduced to tackle the NPLs issue 

The authorities' response to tackle the issue of non-performing loans broadly consisted of 
a three pronged approach:  

  Enhancement of the supervisory framework for the management of non-performing 

exposures (NPEs). 

  Removal of legal, judicial and administrative impediments to NPL management.  

  Establishment of a secondary market for NPL servicing and sales.  

Within each of these pillars, a raft of measures were adopted by the Greek authorities to 
tackle the growing NPL problem. The Box below provides a chronological listing of these 
measures .  

Box 3.10  Key legislation and non-legislative measures related to the NPLs 

introduced by programs or independently (2010-2018)  

2010 

In August 2010, the first-ever personal insolvency law was adopted (Law no. 3869/2010, 
also known as ‘Katseli Law’,  from the  surname of the related minister).  Its aim was to 
give debtors with proven inability181 to serve their loan a way to proceed to a settlement 
with  their  creditors,  in  order  to  repay  a  part  of  their  debt.  The  law  mainly  protected 
primary  residences  from  auctions  until  a  restructuring  was  achieved  (article  19).  Since 
the  law  came  into  force  at  September  1st  2010,  up  until  the  end  of  2016,  more  than 
200.000 applications were filed182. The loose eligibility criteria (articles 1,2)183, led also to 
a large number of “strategic” filings, with debtors essentially making small payments for 

180 IMF Country Report No. 17/229 
181 Although this was the aim of the Law, a specific definition of proven inability to serve a 
loan  was  not  provided  in  it;  this  issue  was  addressed  by  the  courts,  which  granted  this 
status to most filers. 
182 Source: IMF Selected Issue Papers, Country Report No. 19/341, November 2019. 
183 According to Article 1 of this law ”Persons who are insolvent and have, without cause, 
been permanently unable to pay their outstanding arrears, shall be entitled to submit to 
the  competent  court  an  application  for  the  settlement  of  such  debts  and  discharge”. 
According to the same law article “debts undertaken in the last year before the application 
for initiation of the above proceedings cannot be settled”. According to Article 2 of this law 
“  A  prerequisite  for  the  debtor  to  apply  for  a  debt  settlement  and  discharge  before  the 
competent court, is an attempt to reach an out-of-court settlement with his creditors and 
his failure to do so within the last six months prior to the application”. 

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years after the application, until the court hearing. Its main problem was that it elevated 
primary residence protection above other considerations, undermining payment culture 
considerably.  Notably,  the  first  Economic  Adjustment  Programme  did  not  address  the 
negative implications of this law on private debt servicing.  

With Law no. 3898/2010, mediation procedures in civil law and commercial law judicial 
cases were introduced, concerning also banks and bank debtors. The mediator must be a 
lawyer accredited as such. Mediators  should be granted  a license from training bodies. 
These procedures were enacted in the context of adopting Directive 2008/52/EC of the 
European Parliament and of the Council.   

2011 

In a modification of Law no. 3869/2010, Law no. 3910/2011 was enacted on July 2011, 
introducing  a  moratorium  on  foreclosure  of  primary  residences,  amending  article  19  of 
Law  no.  3869/2010.  Subsequent  revisions  of  Law  no.3869/2010,  such  as  Law  no. 
4128/2013, extended the moratorium until 31/12/2013. In the reviews of the first and 
second  Economic  Adjustment  Programmes  these  alterations  are  neither  endorsed  nor 
mentioned. 

2013 

The code of conduct for dealing with defaulted loans were adopted in 2013. Acceptable 
living cost were adopted to help judges in household insolvency cases 

In June 2013, Law no. 4161/2013 was legislated, in order to address the implementation 
shortfalls of Law no. 3869/2010 (‘Katseli Law’) and to deter applications from “strategic” 
defaulters. According to this law’s provisions, while the final court hearing for debtors was 
pending, they were obligated to pay creditors an amount equal to at least 10 percent of 
their last overdue loan installment, which could not be less than €40 per month. 

2015 

With Law no. 4335/2015, concerning amendments to the Code of Civil Procedure, changes 
to auction procedures were initiated, such as delineating the required steps to be followed 
in the case of electronic auctions. 

In  August  and  November  2015,  respectively,  the  Greek  Parliament  passed  Laws  no. 
4336/2015 and no. 4346/2015, in order to amend article 9 of Law no. 3869/2010 (‘Katseli 
Law’).  Law  no.  4346/2015  introduced  stricter  eligibility  criteria  regarding  the  creditors’ 
income,  wealth  and  property  value184,  while  also  helping  banks  to  identify  “strategic” 
defaulters.  Its  most  significant  provisions  concerned  the  definition  of  acceptable  living 
expenses, which could be used by the courts in order to reduce approval of applications 
for  protection.  Furthermore,  Law  no.  4336/2015  included  a  provision  for  cooperating 
borrowers185, so that only they could be protected from mortgage liquidation. Both these 
laws  also  introduced  a  new  ‘Facilitation  Program’  in  order  to  help  distressed  borrowers 
facilitate the settlement of unsustainable household debt, based on the aforementioned 
definitions of affordability, as well as a provision to exclude from the programs’ provisions 
a  debtor  once  he  did  not  meet  the  inclusion  criteria.  All  these  amendments  were 
introduced in the context of the second Economic Adjustment Programme186, in order to 

184 For instance, in order for a debtor who does not have a family to be eligible for filing an 
application, his/her monthly disposable income and property value should not exceed the 
acceptable living expenses by more than 1.7 times, and €180.000 respectively. 
185  Bank  of  Greece  Act  148/10/15.10.2015  provided  a  definition  of  non-cooperating 
borrowers.  According  to  this  Act,  a  borrower  delaying  to  pay  four  consecutive  monthly 
installments would be excluded from the provisions of the Katseli law.  
186  Source:  The  second  Economic  Adjustment  Programme  for  Greece  -  Second  review, 
Occasional Papers 148, DG ECFIN, pp. 82-83.  

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narrow  the  scope  and  eligibility  of  the  Katseli  law,  and  deter  strategic  defaulters  from 
filing an application, in order to be protected.  

In December 2015, Law no. 4354/2015 was adopted, introducing a regulatory framework 
for servicing and transferring NPLs (hereinafter "the NPL Law"). The key provisions under 
this  law  were  related  to  the  ability  to  establish  a  Loan  Asset  Management  Companies 
(“LAMC’s”) and to the legal framework under which they operated. The prerequisite for 
establishing such a company was the acquisition of a special license provided by the Bank 
of Greece. The Law was not applicable until 15.2.2016. The provisions of this law were 
specified in the context of the third Economic Adjustment Programme. 

The  third  programme  also  tasked  the  HFSF  with  presenting  and  implementing  an  NPL 
resolution  plan  that  would  enhance  coordination  among  banks  and  accelerate  large 
corporate restructuring.  

The BoG had to report on the segmentation of NPLs on bank balance sheets and assess 
banks’ capacity to deal with each segment. 

2016 

Following  that,  the  Greek  Parliament  passed  on  22.5.2016  a  voluminous  bill  (Law  no. 
4389/2016) with a series of reforms that paved the way for an agreement on bailout loans 
and debt relief discussions. Within the measures passed, the framework on NPLs was also 
revised, in order to help the development of the NPL secondary market in Greece, thus 
effectively amending the NPL Law mentioned above. 

The BoG, in cooperation with the ECB Banking Supervision (the SSM) issued supervisory 
guidelines for the internal management of NPEs and agreed NPE operational targets with 
banks  for  the  period  June  2017  -  December  2019  to  drastically  reduce  NPLs  and  NPEs 
through write-offs, loan sales and other modes of restructuring and curing187.  

The  BoG  monitors  the  implementation  of  NPE  targets  and  related  key  performance 
indicators through an enhanced prudential reporting framework. This framework has been 
revised to take banks up until end-2021 and fully align Greek banks with the NPE guidance 
provided by the SSM. 

2017 

Law no. 4469/2017 was passed, creating for the first time a mechanism for out-of-court 
debt settlement for indebted businesses188. The main provisions of this law concerned the 
criteria  for  assessing  the  eligibility  and  viability  of  a  debtor,  the  adoption  of  the  “No-
Creditor-Worse  Off”  principle  and  procedures  for  debt  restructuring,  according  to  the 
debtor’s ability to serve it. This law was designed in the context of reforms initiated by 
the third Economic Adjustment Programme189. 

On May 2017, the Hellenic Parliament enacted Law no. 4472/2017, further amending Law 
no. 4354/2015 (the “NPL Law”), which was introduced with a view to creating a secondary 
market  for  debt  receivables  from  non-performing  loans  in  Greece.  Law  no.  4472/2017 
amended the NPL Law in order to facilitate the procedure for the licensing of LAMC’s190. 
Also, the law broadened the scope of the LAMCs, allowing them to also manage immovable 
property functiοning as collateral for their claims. As of May 2019, in total 20 applications 
for  establishing  an  LAMC  were  submitted  to  the  Bank  of  Greece.  As  of  February  2020, 

187 Source: Supplemental Memorandum of Understanding: Greece, DG ECFIN, June 2016, 
p. 22. 
188  For  the  most  part,  the  previously  enacted  laws,  mainly  Law  no.  3869/2010  and  its 
revisions, concerned indebted households. 
189  Source:  The  second  Economic  Adjustment  Programme  for  Greece  -  Second  review, 
Occasional Papers 148, DG ECFIN, p. 40. 
190 According to the previous law, the decision of a three-member committee appointed by 
the ministers of Finance, Development and Tourism was required. 

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there  were  already  23  LAMCs  operating  in  Greece,  with  at  most  10  of  them  having 
relatively big market shares. Once more, the provisions of this law with respect to LAMC’s 
were introduced in the context of the third Adjustment Programme191. 

In addition, the Executive Committee of the BoG also issued Act 118/19.5.2017, which 
sets out the framework for the establishment and operation  of the LAMCs in respect of 
the  documentation  and  procedure  for  licensing  and  operation.  This  Act  replaced  Act 
95/27.5.2016 of the Executive Committee of the BoG. 

Furthermore, Law no. 4472/2017 introduced the option of electronic auctions for pending 
foreclosure  proceedings  of  immovable  property  sales,  with  Ministerial  Decision  no. 
41756/30.05.2017  providing  further  clarifications.  The  new  rules  are  applied  since 
November 2017. The aim of these provisions was to facilitate the implementation of said 
auctions. 

2018 

Due to the impediments in implementing physical auctions proceedings, such as the slow 
pace  of  auction  execution  (the  Code  of  Civil  Procedure  allowed  physical  auctions  to  be 
held  only  one  day  per  week,  while  the  provisions  of  Law  no.  4472/2017  extended  this 
limitation to three days per week for e-auctions), the Greek Parliament enacted Law no. 
4512/2018, mandating the use of electronic auctions for all types of immovable property. 
However, its application to unserviced residential mortgages has been limited, with about 
70% of all auctions ending in failure192, and no measures taken to address this issue. 

Law no. 4587/2018, enacted on December 2018, amended Law no. 4469/2017, enabling 
creditors with smaller claims to participate in the out-of-court workout with an indebted 
business; thus, the application range of the previous law was expanded. 

2019 

The Greek Parliament enacted Law no. 4649/2019 in December 2019, establishing the so 
called ‘Hercules Asset Protection Scheme’. This Law was passed after the completion of 
the  Adjustment  Programmes,  hence  the  reforms  it introduces  are  out  of  their  scope  of 
reforms. Under the Hercules scheme, NPLs will be removed from banks’ balance sheets 
and securitized, with the help of a government guarantee193. 

3.4.2.2  Adequacy of program polices to tackle effectively the NPLs resolution 

and reduction 

The authorities were relatively late in devising and implementing a strategy to deal with 
NPLs, which became a priority only under the third programme. Some measures to tackle 
NPLs were introduced during the early years of the crisis, as indicated in the box above 
and additionally cited by interviewees:  

  IMF experts specialising in NPLs joined the programme as early as 2012;  

  Diagnostics on the impediment of NPLs resolution also started in 2012; 

191 Source: Supplemental Memorandum of Understanding: Greece, DG ECFIN, June 2016, 
p. 21. 
192 Source: IMF Selected Issue Papers, Country Report No. 19/341, November 2019  
193 In these securitisation deals, a bank transfers  some of its bad debts into a financing 
vehicle that then sells different slices of risk to fund managers or other specialist buyers. 
As debt collectors recover money from consumers and businesses that have fallen behind 
on  their  payments,  the  proceeds  flow  to  these  investors,  with  the  safest  piece  getting 
repaid first and the riskiest last.  

The Hercules scheme makes the top-ranking slices of these deals even safer, 
by backing them with a guarantee that the Greek government will step in if they are not 
covered  by  the  underlying  loan  repayments.  This  would  make  such  securitisations  even 
more attractive to investors 

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  Blackrock was asked to check the NPL resolution practice of each bank and make 

recommendations in 2013; 

  The AQR report had a chapter on troubled asset review available early 2014;  

  The  Civil  Code  which  regulates  auctions  of  debt  collaterals  was  modernised  after 
years  of  negotiations  with  the  Ministry  of  Justice.  Out  of  court  debt  settlement 
scheme was adopted in 2014.   

These measures were not adequate, however, and arguably the most important reforms 
relating  to  NPL  resolution  only  started  in  2015.  This  was  also  asserted  by  some 
interviewees and highlighted in other evaluations of the Greek programmes (see Box 3.11). 
By  then,  all  borrowers  were  legally  protected  from  auctions  of  primary  residence 
(regardless  of  income,  wealth  or  size  of  mortgage  loan)  which  created  a  category  of 
strategic defaulters. The delay in pursuing NPL reform is partly understandable considering 
the  extremely  challenging  context  in  Greece  (both  economic  and  political)  and  that  the 
authorities were constantly in a firefighting mode, which required prioritisation of issues 
(PSI, recapitalisation, etc.). 

Box 3.11  Extracts from existing evaluations and audits on the effectiveness of 

programme policies tackling the NPL issue 

IMF (2017) Greece: Ex-Post Evaluation of Exceptional Access Under the 2012 
Extended Arrangement. Country Report No. 17/44 

“While  certain  measures  on  private  debt  restructuring  and  NPLs  management  were 
introduced  early  in  the  program,  a  comprehensive  strategy  to  tackle  NPLs  and 
insolvency frameworks was only adopted relatively late (during the 5th Review) and 
largely  in  reaction  to  poorly  designed  government  initiatives,  when  rising  household 
and corporate bankruptcies made insolvency reform even more politically difficult.” 

“Signs of rising risks to asset quality stemming from previous rapid credit growth and 
precipitous increases in real estate prices did not receive sufficient attention in 2012. 
This could be in part explained by the benign growth forecast at the time of the program 
request,  as  well  as  emerging  political  opposition  to  removing  foreclosure  moratoria, 
political  instability,  and  significant  capacity  constraints.  As  a  result,  many  financial 
sector  reforms,  including  private  sector  insolvency  frameworks  and  NPL  reduction 
measures, were initiated with a significant delay. The slow pace of balance sheet repair 
contributed to high NPLs, which in turn created headwinds to credit and real activity.” 

“Delays  in  addressing  NPLs,  private  sector  insolvency  frameworks,  and  governance 
issues  in  the  banking  sector  weighed  on  the  recovery.  Steadfast  implementation  of 
reforms in these areas should be given high priority.” 

European  Court  of  Auditors.  The  Commission's  intervention  in  the  Greek 
financial crisis. SR 17 

(i) The ECA Report questions whether there has been a comprehensive assessment of 
the  appropriateness  of  creating  an  asset  management  company  (AMC)  in  the  Greek 
context). Argument put forward for NOT using it: funding constraints, diversification of 
NPLs across all sectors, governance issues and EU state-aid considerations.  

(ii) Questions whether NPLs were considered a priority early enough: first programme 
only  provided  a  commitment  to  review  insolvency  legislation;  second  programme  
relying mostly on banks’ internal NPL management which, although essential, proved 
largely ineffective, tangible reforms to improve bank's internal management processes 
were put in place only as from the third programme. Besides, only the third programme 
included  a  condition  to  create  a  functioning  market  for  NPL  servicing  and  sales. 
However, several key impediments were not removed either by the law adopted in late 
2015 or by two further amendments in 2016 (also covering performing loans), and the 
legal framework remained burdensome. 

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(iii)  The  complexity  of  the  insolvency  framework  has  perpetuated  the  NPL  problem 
rather than addressing it within a coherent, centralised strategic framework with clear 
policy  priorities.  The  framework’s  design  also  did  not  take  account  of  the  judicial 
system’s limited capacity for dealing effectively with the large volume of cases. Taken 
together,  such  complexity  and  capacity  problems  have  generated  backlogs,  thus 
disseminating strategic default and moral hazard throughout the system 

(iv) In the case of banks under special liquidation which handled mostly non-performing 
loans,  operations  were  fragmented  for  a  long  period,  giving  rise  to  low  efficiency  in 
terms  of  NPL  collection  and  operating  costs.  For  example,  the  consolidation  of 
operations (16 entities into one) was only a condition under the third programme and 
was  implemented  more  than  three  years  after  the  original  proposal  by  external 
consultants.  The  liquidation  procedure  absorbed  13.5  billion  euros  from  the 
programmes’  funding  via  the  HFSF  and  further  1.7  billion  euros  from  the  national 
deposit guarantee fund. 

ESM (2017) Evaluation of EFSF/ESM programmes 

(i) 

Greece NPL strategy implementation was considerably delayed or has only been 
partially implemented. NPLs stemmed from all loan segments, take a longer time to 
fix (need to work on improving banks’ internal work-out capacity and reforming the 
overall insolvency and judicial systems rather than using Asset Management 
Companies (AMC)) 

ESM (2020) Restoring growth and financial stability: how Greek banks 
contributed 

‘The second programme was silent on how to deal with NPLs should a bank be 
restructured or resolved, or indeed on whether reducing NPLs was a desirable 
strategy to repair bank balance sheets. To meet capital adequacy requirements, 
banks could always in practice reduce their loan supply to conserve capital but keep 
their NPLs, but this would be detrimental for the economy. That second programme 
NPL silence meant guidance was absent on how to implement legal reform to 
accelerate the recovery of collateral should banks want to reduce their NPL stock. 
These shortcomings were addressed in the third programme’s MoU under actions to 
be taken to safeguard financial stability. The main focus was on: (a) normalising 
liquidity and payment conditions and strengthening bank capital; (b) enhancing 
governance; and (c) addressing NPLs.’ 

Tackling NPLs was a politically sensitive issue and this delayed the adoption of some key 
reforms. Several interviewees mentioned that there was lack  of political will ‘to go after 
the debtors’. The Greek governments - both the 2012-2104 government and the SYRIZA-
ANEL  government  -  were  hostile  to  any  kind  of  adjustment  to  loans.  As  stated  by  one 
interviewee ‘During the crisis, it was politically impossible to put an insolvency framework 
in place as people were suffering’. Some interviewees, however, suggested that Greece’s 
international  creditors  should  have  been  more  assertive,  with  the  Greek  authorities  and 
pushed for a more rapid adjustment of NPLs.  

The authorities preferred private sector solutions to reduce NPLs, but these have not yet 
proven to be particularly successful. The authorities’ approach to reducing NPLs centred on 
aligning corporate insolvency law with international practice, making changes to household 
insolvency  law194  and  creating  a  regulated  profession  of  insolvency  administrators.  The 
expectation was that these reforms would ‘unleash market forces that would help to reduce 
the NPLs’. However, private sector solutions to reduce NPLs have not proven particularly 
successful so far195, although  the Hercules protection scheme (securitisation of NPLs  via 
market driven solutions) is starting to bear fruit. 

194 by introducing a time-limited stay on enforcement similar to other countries. 
195 ESM (2020). Restoring growth and financial stability: how Greek banks contributed. 

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While  a  clear  downward  trend  is  visible,  the  NPL  ratio  remains  stubbornly  high.  Non-
performing loans amounted to EUR 68.5 bln at the end of December 2019, down by EUR 
39 bln from their peak in March 2016. However, the NPL ratio remains high, at 40.6 per 
cent in December 2019 and well above the target of 20.4 per cent.  

Measures have been implemented with mixed results (see Table 3.4). For example, many 
stakeholders believe that the setting of NPL reduction targets was a good measure (even 
though the 2019 target will not be met as some of the planned NPL securitizations were 
delayed by a few months so as to fall under the Hercules scheme), as it focused authorities’ 
efforts  to  resolve  the  problem.  Interviewees  also  suggested  that  the  out-of-courts 
settlement scheme has not been particularly effective, as evidenced by the low number of 
loans processed. The secondary market for NPLs has not yet fully taken off, despite a clear 
acceleration in 2019. According to anecdotal evidence, over 20 servicers obtained licences, 
but only three-four have loans that they are currently servicing.   

Table 3.4  Delphi survey - How effective have the following measures been in 

addressing the high level of NPLs? 

Enhancement of the supervisory 
framework for the management of 
NPLs e.g. setting ambitious NPL 
reduction targets for bank 

Establishment of electronic auction 
platforms to allow the sale of 
collateral in defaulted loans by 
banks 

A reform of the insolvency regime 
for households and enterprises 

Enhancement of secured creditor 
rights 

Introduction of an out of court 
procedure in 2014 

Effective  Somewha
t effective 

Highly 
effective 

Ineffectiv
e 

To early to 
say 

67% 

13% 

10% 

7% 

3% 

53% 

27% 

13% 

3% 

3% 

50% 

37% 

0% 

13% 

0% 

50% 

33% 

7% 

7% 

3% 

43% 

33% 

23% 

0% 

0% 

Simplification of legal proceedings  40% 

Simplification of the sale of NPLs 
through the liberalisation of the 
loan-servicing regime and the 
introduction of a secondary loan 
market 

30% 

Source: Delphi survey, N=30 

33% 

23% 

13% 

13% 

3% 

40% 

0% 

3% 

While  NPL  reform  is  a  long  and  complex  process,  NPL  resolution  in  the  Greek  context 
nevertheless  was  impeded  by  delays  or  lack  of  progress  on  significant  NPL  reform  and 
other impediments: 

  Prioritisation  of  repayment  of  State  debt  over  bank  debt.  Greek  businesses  and 
households were massively indebted to the State and tax debt, already high, had 
started  to  build  further  during  the  crisis.  According  to  some  stakeholders,  the 
repayment of tax debt was prioritised over repayment of bank debt; 

  Delays  in  development  of  legislation  for  NPL  servicing  and  sales.  Although  work 
started in 2014, it only materialised after the approval of the third programme; 

As already mentioned, reluctance of the Greek authorities and political sensitivities 
around evictions and changing the legislative framework for the management of NPLs 

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  Some  measures  did  not  deliver  the  desired  results,  e.g.  out-of-court  settlement 

scheme, e-auctions.  

The option of creating an Asset Management Company (AMC, or bad bank), while discarded 
during  the  programmes,  is  now  seen  by  BoG  as  one  potential  way  of  accelerating  the 
reduction of NPLs. Initial arguments against the creation of an AMC were as follows: 

  The Greek NPL stock was large and comprised heterogenous as well as harder-to-
value  non-standardised  assets  (such  as  SME  loans).  While  AMCs  were  created  in 
Ireland (to deal with commercial real estate debt) and Spain (to deal with residential 
real  estate  debt),  there  were  no  precedents  of  an  AMC  pooling  different  asset 
classes; 

  The creation of an AMC could come at a cost that would deplete or even exceed 

the available maximum fiscal place of the Greek government under the 
programmes, while it would have implications for the Greek public debt.196. 

  Other  factors  such  as  the  lack  of  time  and  capacity  needed  to  set-up  an  AMC; 
concerns on the governance aspects of a public AMC, the importance of the bank-
client  relation  in  a  context  of  widespread  strategic  default,  the  impact  on  banks' 
balance sheets and EU state-aid considerations.  

For  the  above  reasons,  an  AMC  was  not  considered  to  be  an  appropriate  solution  for 
addressing NPLs at the time. Moreover, the creation of an AMC would not have solved the 
issues  relating  to  payments  culture  and  strategic  defaulters.  Some  stakeholders 
interviewed however, were of the opinion that this was a missed opportunity to address 
the  NPL  problem.  It  is  not  within  the  scope  of  the  present  study  to  judge  whether  this 
decision was justified at the time or not. 

3.5  Governance aspects of the Greek banking sector 

3.5.1  Effectiveness of programme policies to improve the governance of the 

Greek banks 

The following section addresses the study question 5a and 5b:  

Question 5a: To what extent were programme policies adequate to improve the 
governance of Greek banks?  

Question 5b: To what extent has the Hellenic Financial Stability Fund (HFSF) played an 
effective role in this regard? 

In order to respond to the study question 5a, the following aspects will be considered: 

  Key programme policies concerning the governance of Greek banks 

  Assessment of the effectiveness of the key corporate governance reforms  

Regarding the study question 5b, the following aspects will be considered: 

  Description of the HFSF and of its role to the banking sector during 2010-2018 

  Reforms of HFSF competence and governance 

  Assessment of the role of the HFSF and impact of changes to its governance on the 

effectiveness of the banking sector 

196 ESM (2020). op cit. 

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3.5.2  Adequacy of the programme policies to improve the governance of Greek 

banks 

3.5.2.1  Key programme policies concerning the governance of Greek banks 

In the aftermath of the global financial crisis and prior to the first Economic Adjustment 
Programme for Greece, that is from the beginning of 2009 and up to May 2010, there are 
no  references to governance aspects of the banking sector in Greece in reports  of well-
known Greek and European institutions, such as the Bank of Greece, European Commission 
and European Central Bank. These reports, listed below, have also been reviewed as part 
of  the  assessment  under  study  question  1  (Box  3.2),  focusing  on  the  diagnosis  of  the 
financial sector at the outset of the crisis:  

  The  Annual  Reports  of  the  Bank  of  Greece  for  2008  and  2009,  published  in  April 

2009 and April 2010;  

  The Monetary Policy Reports of the same institution for 2009 and 2019, published 

in March 2010 and March 2009; 

  The Financial Stability Reviews of the European Central Bank for 2009 and 2010 and  

  The  European  Economic  Forecasts  of  the  European  Commission,  for  spring  and 

autumn 2009, as well as for spring 2010. 

Thus, before the 2010 sovereign crisis in Greece, no inefficiencies to the governance of the 
banking  sector  were  explicitly  spelt  out.  Hence,  changes  to  it  were  not  included  to  the 
political agenda before the Economic Adjustment Programmes (EAPs). 

The  conditionality  of  the  first  EAP  for  Greece  did  not  include  direct  interventions  to  the 
framework of the governance of the Greek banks. But, the founding law of the HFSF,197 
which is in accordance with Annex 2 of the MoU for the first EAP, established that in case 
the Fund participates to the recapitalisation of a credit institution with a share up to 90 per 
cent, it has the right to be represented in its board of  directors by one member198. This 
member  had  a  veto  right  on  decisions,  which  are  readily  presented  in  the  subsection 
4.5.2.2, as they concern the Fund’s degree of intervention to the governance of the banking 
sector and its effects. In case of a participation to a recapitalisation with a share higher 
than 90 per cent, then the Fund’s voting rights are in accordance to this share.  

The main reason behind the limited participation and control of the HFSF over the board of 
directors, despite a significant contribution to a recapitalisation, was to avoid the State’s 
interference to the management of the banks and to keep it to the hands of the private 
sector to ensure private management practices. From this rationale it also emerges that 
since the launch of the first programme, there were concerns among the official lenders 
about  potential  government’s  interventions,  although  these  did  not  lead  to  a  policy 
intervention about restructuring the governance of the banking sector, as at the start of 
the third EAP. This approach to the HFSF role in the recapitalised banks’ management was 
likely an important sweetener in banks’ efforts to attract private investors. 

The first EAP brought no other changes to the legal framework regarding the governance 
of  the  Greek  banks.  Also,  the  Greek  authorities  did  not  proceed  on  their  own  with  such 
reforms.  

But, the above HFSF law provision was activated during the second EAP, in the context of 
the first recapitalisation of the banking system, during January-June 2013. Specifically, the 
HFSF  fully  covered  the  capital  needs  of  one  of  the  four  systemic  banks,  namely  of 
Eurobank,  which  subsequently  came  under  State’s  ownership,  whereas  its  share  to  the 
recapitalisation of Alpha Bank,  National Bank of  Greece and  Piraeus  Bank was below 90 

197  Law  No.3864/2010,  Government  Gazette  119  A’,  21/07/2010.  Available  at: 
http://www.hfsf.gr/files/legal/01.L3864.pdf  
198 DG ECFIN, 2010. The Economic Adjustment Programme for Greece, Occasional Papers 
61, May 2010 

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per cent. Thus, the Fund’s participation to their boards of directors and control over those 
banks was limited than that of a normal majority shareholder. Consequently, although the 
HFSF  founding  law  provisions  brought  changes  to  the  governance  of  the  Greek  banks, 
these  were  not  in  line  with  full  control  as  in  a  conventional  structure  where  majority 
shareholder  has  wide  rights.  The  participation  rates  of  the  HFSF  to  the  capital  share  of 
these banks during 2010-2018 is presented in the subsection 4.5.2.1, about the role of the 
Fund to the banking sector in this period. 

In May 2012, a few months after the conclusion of the second EAP, the RFA was enacted 
between  the  HFSF  and  a  bank  that  receives  financial  support  from  the  Fund199.  An  RFA 
regulates  the  relations  between  a  bank  and  the  Fund  in  respect  of:  (a)  corporate 
governance,  (b)  preparation  and  approval  of  the  restructuring  plan,  (c)  significant 
obligations under the restructuring plan and the change in HFSF’s  voting rights, (d) the 
monitoring of the implementation of the restructuring plan and all risks undertaken thereof, 
and  (e)  HFSF’s  consent  rights.  The  Fund  concluded  different  RFAs  for  transitional  credit 
institutions, for banks where the HFSF has full voting rights (private sector participation 
<10 per cent ) and for those where the HFSF has restricted voting rights (private sector 
participation  ≥10 per cent), The establishment of the RFAs was the only – albeit important 
- reform to banks’ governance during the second EAP. 

In the spring of 2014, the second recapitalisation of the banking system took place, with 
all the capital infused to four ‘core banks’ coming from the private sector. Accordingly, the 
Fund’s participation to the board of Eurobank declined. 

No  other  policies  concerning  either  the  means  to  intervene  in  banks’  governance  or  the 
restructuring of the management of the banking sector were designed or implemented in 
the second EAP. 

The most important changes to the management of the Greek banks were brought by the 
third EAP. Regarding banks governance, the general principle explicitly stated in the MoU 
between the ESM and Greece in August 2015 was that ‘The government will not intervene 
in  the  management,  decision-making  and  commercial  operations  of  banks,  which  will 
continue to operate strictly in accordance with market principles’. Furthermore, ‘the board 
members and senior management of the banks will be appointed without any interference 
by the government. These appointments will be made in line with EU legislation and best 
international practices, taking into account the specific rules in the HFSF law as regards 
the rights of the private shareholders who participated in the banks’ capital increases under 
the existing framework200.’  

According to a provision of the MoU between the ESM and Greece in August 2015, the HFSF 
should  introduce  a  process  to  review  the  boards’  and  committees’  members  of  the  four 
systemic banks, with the help of an independent international consultant (p.21). After the 
conclusion of the review, the boards of directors should include at least three independent, 
non-executive international experts, with adequate knowledge and long-term international 
experience in banking. The MoU included no specification of this knowledge and experience. 
They were also required to have no affiliation with any Greek credit institution during the 
last 10 years. These criteria mainly constituted the ‘fit and proper’ rules for assessing bank 
management, which were established with Law No.4340/2015. According to MoU for the 
third  programme  (also  p.21),  they  aimed  to  ensure  the  prudent  management  and  full 
independence of the banks that were recapitalised by the Greek government. 

199  Ministerial  Council  Act  15  of  03-05-2012,  Government  Gazette  117  A’,  04/05/2012. 
Available at: http://www.hfsf.gr/files/legal/11.CA119.pdf 
200 European Commission (2015). Memorandum of Understanding between the European 
Commission,  acting  on  behalf  of  the  European  Stability  Mechanism,  and  the  Hellenic 
Republic, and the Bank of Greece, August 2015 

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Besides  the  above  conditions,  Law  No.4340/2015201  established  the  following  reviewing 
criteria:  

  At  least  one  member  should  have  expertise  and  at  least  5  years  of  international 

experience in risk management and distressed asset management; 

  Besides the requirement for at least 10 years of international banking experience, 
the aforementioned independent, non-executive experts should have at least three 
years  of  experience  as  a  board  member  or  in  a  senior  managerial  level  position, 
and,  

  Individuals  that  had  served  in  senior  civil  servant,  public  corporation  or  partisan 
positions  in  the  last  three  years  were  excluded  from  board  membership.  The 
aforementioned criteria were the minimum requirements for board membership and 
any amendment was in the discretion of the HFSF and the consultant. 

A few weeks later after the enactment of Law No.4340//2015 some of its aforementioned 
provisions  were  amended  through  Law  No.4346/2015202:  More  specifically,  the  10-year 
experience in international banking for independent, non-executive experts increased to 
15  years,  whereas  their  required  three-year  experience  in  a  senior  managerial  position 
should have been acquired in institutions not operating in the Greek credit market. A 10-
year experience, either domestically or internationally, was put as a prerequisite for the 
rest  of  the  members  of  the  board.  Finally,  the  moratorium  for  those  who  had  served  in 
senior civil servant, public corporation or partisan positions was extended to 4 years.  

The  reviewing  criteria  of  banks’  boards  of  directors  established  under  the  third  EAP  are 
considered  demanding  for  banking  sector  experts.  Also,  the  requirement  for  the  three 
independent international experts with no affiliation with any Greek credit institution during 
the last 10 years is indicative of the intention to remove part of the long-term management 
of  the  banks.  The  rationale  of  this  intention  is  considered  to  be  reduction  of  the  risk  of 
political interference, as well as of relations with long-term, highly indebted borrowers. The 
tightening of the evaluation rules is considered indicative of the third EAP’s aim to staff the 
boards of directors with highly experienced members in international banking, who would 
be capable of managing the core banks after their third recapitalisation, helping them to 
confronting their multiple problems, particularly NPLs, and avoiding the need for another 
recapitalisation, at least in the medium-term.  

In April 2016, the HFSF announced that in order to implement the evaluation of the boards 
of directors and committees of the systemic banks, it would be assisted on a technical basis 
by the European Bank for Reconstruction and Development (EBRD). Furthermore, it had 
conducted  a  tendering  process  according  to  which  Spencer  Stuart  was  selected  as  the 
preferred consulting firm for the evaluation process203.  

The conclusions and recommendations of this evaluation are considered valuable for the 
assessment of the efficiency of the changes that the new criteria brought to the synthesis 
of banks’ boards and committees. The contractor of the current study requested the report 
of the evaluation from the HFSF. It was not provided on the basis that it contains highly 
sensitive information including personal assessments of individual banks board of directors 
members. 

A few  months earlier than the launch of the assessment, in November-December 2015, 
the third recapitalisation of the banking system was implemented. Two of the four ‘core 
banks’, namely Piraeus Bank and NBG, received capital injections from the HFSF, while the 

201  Law  No.4340/2015,  Government  Gazette  134  A’,  01/11/2015.  Available  at: 
http://www.hfsf.gr/files/legal/24.L4340am20.pdf  
202  Law  No.4346/2015,  Government  Gazette  152  A’,  20/11/2015.  Available  at: 
http://www.hfsf.gr/files/legal/25.L4346am21.pdf  
203 HFSF press release. Available at: 
 http://www.hfsf.gr/files/announcement_20160428_en.pdf  

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other  two  managed  to  raise  their  required  capital  needs  from  the  private  market.  The 
needed HFSF funds for recapitalisation were significantly lower than initially expected204. 
Accordingly, private participation exceeded the 10 per cent threshold even in the cases of 
NBG and Piraeus banks. 

No other policies concerning the governance of Greek banks were introduced by the third 
EAP. 

Summarising the reforms to the governance of the banking system in the context of the 
Economic  Adjustment  Programmes  for  Greece,  the  first  EAP  did  not  include  measures 
aiming  directly  to  changing  the  governance  framework  of  the  Greek  banks.  But,  a 
possibility  of  potential  restructuring  of  a  bank’s  governance  was  introduced  at  the 
beginning  of  this  programme,  with  the  founding  law  of  the  HFSF,  in  case  of  a 
recapitalisation by the Fund. Changes depended on the participation rate of the HFSF to 
the recapitalisation. Only in case it exceeded 90 per cent, the Fund’s voting rights were in 
accordance to this share, otherwise these were limited. The main reason behind the limited 
participation was to avoid the State’s interference to the management of the banks and 
keep it to the hands of the private sector. From this rationale emerges that since the launch 
of  the  first  programme,  there  were  concerns  among  the  official  lenders  about  potential 
government’s interventions to the governance of the banking sector. This provision avoided 
a radical change of banks’ governance after a recapitalisation, a development that could 
aggravate  deposit  outflows  and  further  increase  financial  stability  risks.  Considering  the 
timing  of  the  first  banks’  recapitalisation  from  the  HFSF,  when  the  bail-in  and  the  bank 
holiday in the Cypriot banking system took place (first semester of 2013), such dangers 
were highly elevated.    

Almost at the beginning of the second EAP, the RFAs between the HFSF and recapitalised 
banks  were  established.  These  agreements  safeguarded  the  HFSF’s  targets  and  rights, 
defined  its  role  as  a  shareholder  and  provided  the  Fund  with  the  ability  to  promote  or 
enforce concrete strategies and governance arrangements.   During the first semester of 
2013, the HFSF law provision, concerning participation in the banks’ boards in case of a 
recapitalisation was activated, in the  context  of the first  recapitalisation. This led to the 
first change to the governance of the banking sector caused by programme policies.  

The most important changes to the management of the Greek banks were brought at the 
beginning of the third EAP. First, the MoU explicitly stated that the government would not 
intervene  in  the  management,  decision-making  and  commercial  operations  of  banks, 
including  board  member  and  senior  management  nominations.    Second  and  most 
importantly, the HFSF implemented a thorough review  of the boards  and committees  of 
the four systemic banks. What is more important is that the review was implemented with 
newly established, much stricter criteria (‘fit-and-proper’ rules). They also aimed to ensure 
the full independence of the banks that were recapitalised by the Greek government and 
internationally  experienced  management,  which  was 
prudent,  highly  capable, 
indispensable for banks to cope with the problems at the time and to limit the probability 
of another recapitalisation in the medium-term.      

Thus, safeguarding the financial sector from political interference was a constant target of 
programme policies in this field. 

3.5.2.2  Assessment of the effectiveness of the key corporate governance 

reforms  

This  subsection  focuses  on  the  assessment  of  the  effectiveness  of  reforms  to  the 
governance of Greek banks. For this purpose, the views expressed during interviews with 
shareholders,  the  results  of  the  Delphi  survey,  as  well  as  reforms’  evaluations  by  well-
known international organisations (European Court  of Auditors,  IMF) and DG  ECFIN and 
IMF programme reviews were combined. 

204 DG ECFIN (2016). Compliance Report-The Third Economic Adjustment Programme for 
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One of the most significant programme policies concerning the governance of the financial 
sector,  probably  the  most  influential,  was  the  2016  evaluation  of  the  boards’  and 
committees’ of the four systemic banks with the ‘fit-and-proper’ criteria. As was mentioned 
in subsection 4.5.1.1, it was carried out by the HFSF, with the assistance of Spencer Stuart 
consulting 
is  not  accessible.  Consequently,  the 
recommendations of this assessment are not publicly available. 

firm,  but  the  relevant  report 

Nonetheless, regarding their implementation, the DG ECFIN report for the second review 
of the third EAP considered that the reconstitution process in the boards of directors led to 
a ‘substantial overhaul of board compositions and new independent non-executive board 
members joining the boards’205. Furthermore, ‘the HFSF ensured that the minimum criteria 
of  the  HFSF  law  were  consistently  applied  for  replacements’.  The  Ministry  of  Finance 
ensured  that  the  same  also  holds  for  the  State  Representatives  in  the  boards’.  Thus, 
according to DG ECFIN, the implementation of the recommendations of this evaluation led 
to  a  substantial  restructuring  of  banks’  governing  bodies,  which  strengthened  the 
independence of the boards vis-à-vis the political system and former ownership of banks. 

Earlier in the same year, the IMF noted that the legislation tightening eligibility for bank 
boards was yet to be fully implemented. Specifically, IMF commented that ‘the authorities 
should  implement  their  plans  to  fully  reconstitute  bank  boards  on  the  basis  of  revised 
eligibility criteria in line with prudent internal practices that go beyond supervisory ‘fit-and-
proper’  criteria  as  defined  by  the  SSM,  so  as  to  uproot  the  linkages  between  the  Greek 
banks, politicians, and  powerful vested interests’206. Conclusively, in February 2017, the 
recommendations  of  the  HFSF  evaluation  had  not  been  implemented.  Furthermore,  the 
IMF  considered  their  implementation  necessary  for  confronting  the  State’s  and  other 
interests’ interference to the financial sector. 

The need to keep clear boundaries between banks and the State during the EAPs is also 
highlighted in the literature. Haliasos et al.207 consider that ‘State ownership of the banks 
(after  the  first  recapitalisation)  could  have  opened  the  door  for  interference  by  local 
politicians, with negative consequences for the allocation of credit and productivity growth’. 
In order to guard against these problems, they refer to the provisions of the MoU for the 
third EAP. According to them, ‘they reduced the government’s say in the HFSF, giving EZ 
representatives most of the decision-making power’. Next, they listed the ‘fit-and-proper’ 
criteria.  While  they  assessed  some  of  these  measures  as  overly  strict,  ‘such  as  when 
capable  people  with  experience  in  the  Greek  banking  system  are  excluded  from  key 
appointments  in  the  banks’,  on  the  other  hand  they  believe  that  ‘they  have  had  the 
beneficial  effect  of  curbing  interference  by  local  politicians  in  the  banking  system.  This 
represents a sharp break with the past’. 

In  the  ex-post  evaluation  of  its  2012  financial  assistance  program  to  Greece,  the  IMF 
considered that the ‘imposition of a stringent ‘fit and proper’ standard for board members 
and management and other strict governance rules immediately after the PSI might have 
improved banks’ governance faster, avoiding the need to police governance problems on 
a case-by-case basis’208.  

A  report  published  by  the  European  Court  of  Auditors,  examined  the  European 
Commission’s management of the three EAPs for Greece. In relation to the ESM stability 

205 DG ECFIN, 2017. Compliance Report-The Third Economic Adjustment Programme for 
Greece – Second Review, June 2017 
206 IMF, 2017. 2016 Article IV Consultation-Press Release; Staff Report; And Statement by 
the Executive Director for Greece, February 2017 
207  Haliassos,  M.,  Hardouvelis,  G.,  Tsoutsoura,  M.  and  D.  Vayanos  (2017).  Financial 
Development  and  the  Credit  Cycle  in  Greece.  In  Beyond  Austerity  –  Reforming  Greece 
Economy, ed. Meghir, C., Pissarides, C., Vayanos, D. and N. Vettas, 251-305. MIT Press. 
208 IMF (2017). Greece: Ex-Post Evaluation of Exceptional Access Under the 2012 Extended 
Arrangement-Press  Release;  Staff  Report;  and  Statement  by  the  Executive  Director  for 
Greece, February 2017 

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support programme, the audit focused only on the design aspects. According to ECA, only 
the  ESM  programme  included  a  condition  on  the  evaluation  of  banks’  corporate 
governance,  for  establishing  stricter  selection  criteria  as  regards  the  qualifications  and 
experience of bank board members209. This provision aimed to ‘tackle potential political or 
business  interference’.  But  the  report  criticises  the  fact  that  ‘criteria  restricted  the 
candidates  to  banking and  financial  expertise;  such  a  requirement  was  not  fully  aligned 
with international practices and EU/SSM requirements, which, in principle, promote board 
diversity  and  collective  knowledge.’  Thus,  although  the  reform  was  towards  the  right 
direction concerning eligibility criteria about banking and financial sector candidates, the 
ECA believed it should not have restricted the range of members of banks’ governing bodies 
to those categories of corporates. Nevertheless, this assessment does not take into account 
the  aim  of  the  new,  demanding  selection  rules  to  attract  best-in-class  experts  in 
international  banking,  in  order  to  help  the  banking  sector  in  Greece  with  the  multiple, 
significant problems it faced after 2015. These banking experts would prefer to be secured 
from the various conflicts of business interests evident in the boards of directors. 

On  the  side  of  assessments  of  interviewees  about  the  ‘fit  and  proper’  rules  and  the 
subsequent evaluation of the boards of directors of the banks, one of them, representing 
a Greek regulatory authority, said that the logic behind the new criteria was to replace the 
management teams, that were in charge of the Greek banks when credit expansion was 
high, a trend which later resulted in the increase of NPLs. Another interviewee representing 
a  Greek  regulatory  authority,  stressed  that,  taking  into  account  how  Greek  banks  were 
managed before crisis, that is, by families and individuals with strong presence and history 
in the banking sector, the fact that the HFSF acquired the right to evaluate the boards of 
directors of the recapitalised systemic banks, was a very meaningful change. 

Also on the issue of eligibility criteria for the appointment of the management of the banks, 
one interviewee representing a Greek regulatory authority, stressed that something that 
was new and has not received much attention, is the fact that, in general, entrepreneurs, 
some of which have a very good view on businesses’ needs from the banking sector, were 
totally  excluded  from  the  selection  process.  On  his  view,  such  an  exclusion  was  an 
overreaction, because it led to the exclusion of some capable corporate executives from 
the selection process. For this reason, he assessed the criteria as being too narrow and too 
strict, thus significantly limiting the number of eligible nominees for the management of 
systemic  banks.  The  same  interviewee  also  said  that,  despite  the  criteria  being  strict, 
radical  reforms  could  not  be  achieved  if  a  signal  of  a  significant  change  in  the  top 
management of the banks was not given. Given the restructuring that has taken place, the 
criteria needed to be revised and allow some staff from Greek businesses to participate to 
the boards of directors. 

The responses to the Delphi survey about the 2016 evaluation of boards of directors and 
the related committees are in line with the conclusions of the above presented evaluations 
from  international  organisations.  Specifically,  the  vast  majority  of  respondents  (80  per 
cent) agree/strongly agree that the eligibility criteria for banks’ Boards of Directors defined 
in the ‘fit and proper’ mechanism have been appropriate (Figure 3.27). This share is 82 
per  cent,  in  the  case  of  the  sample  of  financial  sector  experts.  Thus,  this  part  of 
respondents  also  strongly  embraces  changes  brought  to  the  top-level  management  of 
banks with the ‘fit and proper’ rules. 

209 ECA (2017). Special report No 17/2017: The Commission's intervention in the Greek 
financial crisis, November 2017 

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Figure 3.27  Delphi survey – whether the eligibility criteria for banks’ Boards of 

Directors defined in the ‘fit and proper’ mechanism (Laws No. 4340/2015 
and No. 4346/2015) have been appropriate 

Strongly disagree

3%

Strongly agree

Disagree

Agree

17%

17%

Agree

Disagree

Strongly agree

Strongly disagree

63%

0%

10%

20%

30%

40%

50%

60%

70%

Source: Delphi survey, N=30 

An expert from the financial sector expressed the view that the HFSF was in general well 
governed,  but  she  supported  that  it  should  have  introduced  the  ‘fit  and  proper’  criteria 
immediately  after  the  PSI.  Yet,  one  respondent  supported  the  view  that  the  eligibility 
criteria were not appropriate. He considers that because of them, a number of directors 
with  little  or  no  knowledge  of  the  idiosyncrasies  of  the  Greek  economy  and  business 
environment, who did not have a better CV or experience than the previous Greek directors 
took important positions in Greek financial sector. 

The participants to the Delphi survey are not in favour of a more drastic role of the HFSF 
to  the  management  of  the  banks.  About  63  per  cent  of  all  experts  disagree/strongly 
disagree  with  the  view  that  the  HFSF  should  have  played  a  more  active  role  in  the 
governance  of  four  systemic  banks  regarding  the  appointment  of  the  management  and 
only  37  per  cent  agree/strongly  agree  with  this  view  (Figure  3.28).  Experts  from  the 
financial sector mostly disagree with this view, as their percentage is 56 per cent, against 
a 44 per cent that agrees.  

Figure 3.28  Delphi survey - Do you believe that the HFSF should have played a more 

active role in the governance of four systemic banks regarding the 
appointment of the management? 

Strongly disagree

0%

Strongly agree

4%

Agree

Disagree

33%

63%

0%

10%

20%

30%

40%

50%

60%

70%

Source: Delphi survey, N=30 

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Disagree

Agree

Strongly agree

Strongly disagree

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Regarding in general the efficiency of the EAPs’ policies concerning the governance of the 
banking sector in Greece, about those for the second programme, the IMF concluded that: 
‘while conditionality on governance of the banks and of the  state-owned recapitalisation 
vehicle (the Hellenic Financial Stability Fund, or HFSF) was nominally met after the PSI, 
close links between the senior leaders of the banks, political parties, and large corporations 
were not broken for political reasons. This may have negatively affected banks’ ability to 
attract  capital  and  cope  with  rising  asset  quality  problems210.’  Consequently,  during  the 
second EAP, no substantial changes took place in the management of the banking system. 

With  respect  to  the  financial  sector  reforms  during  the  first  two  programmes,  the  ECA 
report  mentioned  above  criticises  the  fact  that  although  ‘governance-related  problems 
(e.g.  lending  to  related  parties  on  non-market  terms)  existed  well  before  the  crisis,  as 
Greek banks’ corporate governance was, on average, considerably inferior to that of their 
European counterparts from the outset’, nevertheless ‘the (first) programme itself did not 
include  conditions  to  enhance  bank  governance.’  However,  this  evaluation  seems  to 
downplay some significant changes in case of a bank recapitalisation from the HFSF that 
were initiated with its founding law in 2010, as well as after the start of the second EAP, 
presented in section 4.5.1.1 (participation of the HFSF to the BoD of a recapitalised bank, 
RFAs between the Fund and banks). 

Regarding developments in the management of banks during the second programme, ECA 
considers that ‘contrary to international practice, changes of ownership that led in 2013 to 
the almost full nationalisation of the domestic banking sector were not reflected on most 
bank boards’. This is because ‘the second programme provided that the four largest Greek 
banks (‘systemic’) would be recapitalised mostly by programme funds via HFSF but without 
ensuring  sufficient  scrutiny  of  their  private  management.’  Thus,  ECA’s  views  on  the 
changes to bank management in the context  of the second  EAP are  broadly in line with 
those  of  IMF,  considering  them  to  be  poor.  Neither  evaluation  takes  into  account  the 
rationale behind the limited role of the HFSF in the recapitalised banks' governing bodies, 
analysed  in  section  4.5.1.1  (keep  State  interference  at  arms’  length,  attract  private 
investors).  

With respect to HFSF’s limited powers to the recapitalised banks’ boards of directors, one 
interviewee,  representing  a  Greek  government  organisation  and  another,  from  a  Greek 
regulatory authority, supported that one of the intentions during the design of the statute 
of  the  Fund  was  to  act  as  a  backstop  mechanism  against  nationalisation.  There  was  no 
intention to interfere to the management of the banks. This approach was considered by 
another  interviewee,  representing  a  Greek  regulatory  authority,  wrong.  Specifically,  he 
considered that this framework was used by the Fund as a way of being completely absent 
from the involvement in the banks and steering the direction of their restructuring. One 
interviewee, from a Greek regulatory authority, stressed that there have been some issues 
regarding the communication of the role of the HFSF as a shareholder in Greek banks and 
that the Executive Board of the Fund should have communicated this role in a more proper 
way. 

Two interviewees, one from the financial sector and one representing a Greek regulatory 
authority, believed that corporate governance was not the problem of the Greek banks at 
the  outset  of  the  crisis,  but  the  whole  system  was  problematic  (e.g.  legal  system, 
bankruptcy law). The first of them stressed that banks neither adapted their function nor 
adjusted their cost structure to the facts of the crisis. It should be noted, however, that 
this  evaluation  does  not  appropriately  take  into  account  the  restructuring  plans 
implemented  by  the  Greek  banks  as  a  consequence  of  the  first  recapitalisation. 
Furthermore, he was not sure whether banks were consolidated and adjusted in the way 
this should have been done, as the consolidation process led to a huge destruction of their 

210 IMF, 2017. Greece: Ex-Post Evaluation of Exceptional Access Under the 2012 Extended 
Arrangement-Press  Release;  Staff  Report;  and  Statement  by  the  Executive  Director  for 
Greece, February 2017 

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value,  in  comparison  with  banks  in  other  countries.  Nonetheless,  he  considered  that 
nowadays the bank management is better than before the EAPs.  

Many  interviewees  hold  the  view  that  the  existence  of  the  HFSF  resulted  in  the 
improvement of the governance of Greek banks. Specifically, because of its participation, 
things now are more transparent taking into account the starting point. Thus, the creation 
of the  HFSF was a  significant achievement with respect to the governance  of banks. An 
interviewee  from  the  institutions  stressed  that  the  Fund  could  have  played  a  most 
significant role in improving governance of the banking sector, but this was not possible 
due to political reasons. 

Regarding the interference of the HFSF to certain issues that affected the banking sector 
during the EAPs, 70 percent of  experts agree/strongly agree that  the HFSF should have 
played  a  more  active  role  in  the  governance  of  four  systemic  banks  regarding  the  NPLs 
management policy, whereas those that disagree/strongly disagree is only 30 per cent of 
the sample (Figure 3.29). These shares are practically the same in the financial sector sub-
sample (69 per cent and 31 per cent, respectively). 

Figure 3.29  Delphi survey - Do you believe that the HFSF should have played a more 
active role in the governance of four systemic banks regarding the NPLs 
management policy? 

Strongly disagree

0%

Strongly agree

3%

Disagree

Agree

30%

Agree

Disagree

Strongly agree

Strongly disagree

67%

0%

10%

20%

30%

40%

50%

60%

70%

Source: Delphi survey, N=30 

In addition, 60 percent of experts disagree/strongly disagree with the view that the HFSF 
should have played a more active role in the governance of four systemic banks regarding 
the credit supply policy and only 40 per cent of them agree/strongly agree with this view 
(Figure  3.30).  In  the  financial  sector  experts’  subsample  the  share  of  experts  that 
disagree/strongly  disagree  is  higher,  reaching  69  per  cent  and  the  rest  31  per  cent 
agree/strongly agree with this view. 

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Figure 3.30  Delphi survey - Do you believe that the HFSF should have played a more 
active role in the governance of four systemic banks regarding the credit 
supply policy? 

Strongly disagree

3%

Strongly agree

13%

Agree

Disagree

27%

Disagree

Agree

Strongly agree

Strongly disagree

57%

0%

10%

20%

30%

40%

50%

60%

Source: Delphi survey, N=30 

The European Court of Auditors report highlighted another aspect of the financial sector 
reforms. Specifically, ECA supported that they ‘did not focus sufficiently on the governance 
and domestic supervision of less significant banks.’ As an example of this was mentioned 
in the report that ‘almost six years after the first programme was introduced, an on-site 
inspection by the BoG and the SSM in March 2016 revealed severe internal deficiencies in 
terms of governance, risk management and lending practices at one bank.’ 

To sum up the conclusions of international organisations’ evaluations about key corporate 
governance reforms in the banking sector, as well as the views of stakeholders on them, 
although  some  caveats  are  highlighted,  there  is  a  wide  consensus  on  the  usefulness  of 
implementation of the ‘fit-and-proper’ criteria, as well as on that they should have been 
implemented  much  earlier,  after  the  PSI.  Experts  from  the  financial  sector  strongly 
supported the reform, in the context of the Delphi survey. It is considered as strengthening 
the independence of the boards vis-à-vis the political system and other vested interests. 
But,  many  sides  suggest  a  broadening  of  the  criteria,  in  order  not  to  exclude  corporate 
executives beyond the financial sector. 

On one hand, the programmes’ evaluations agree that little was done during the first two 
EAPs in order to evaluate and restructure the governing bodies of the Greek banks. This 
neglect may have negatively affected banks’ ability to attract capital and confront asset 
quality problems. On the other hand, some  of the interviewees stressed that the limited 
role of the HFSF in the banks, even after their recapitalisation was a result of the relevant 
provisions  in  its  statute.  Their  purpose  was  that  the  Fund  should  act  as  a  backstop 
mechanism against nationalisation. 

Another aspect of the financial sector reforms is that they did not focus sufficiently on the 
governance and domestic supervision of less significant banks. 

3.5.2.3  Description of the HFSF and of its role to the banking sector during 

2010-2018 

The creation of the (Hellenic) Financial Stability Fund was included in the conditionality for 
the first Economic Adjustment Programme for Greece. According to the first Memorandum 
of Understanding between Greece and its official lenders, ‘the primary purpose of the FSF 
is to preserve the financial sector’s soundness and thus its capacity to support the Greek 
economy,  by  providing  equity  support  to  banks  as  needed.  Whenever  supervisory 
assessments  conclude  that  a  bank’s  capital  buffer  might  fall  below  adequate  levels,  the 
shareholders will be required to immediately bring additional capital or take bridging capital 
support from the FSF. If banks are then not able to expeditiously raise additional capital 

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on their own and repay the FSF, a restructuring process will take place under the lead of 
the FSF, in line with EU competition and state aid requirements’211. In order to be able to 
fulfill this purpose, the HFSF was financed with EUR 10 bln, from the financing package of 
EUR 110 bln attached to the first EAP. In the founding law of the HFSF212 was defined that 
not only domestic credit institutions, but also subsidiaries of foreign credit institutions could 
receive aid from the Fund. 

As  already  mentioned  in  section  4.5.1.1,  in  case  the  Fund  participated  to  the 
recapitalisation of a credit institution with a share up to 90 per cent, it had the right to be 
represented to its board of directors by one member. This member had certain powers that 
are  presented  in  the  following  subsection  and  indicate  the  degree  of  Funds  potential 
interference to banks’ governance. Only in case of a participation to a recapitalisation with 
a share higher than 90 per cent, the Fund’s voting rights were in accordance to this share.  

Another target during the establishment of the HFSF was that ‘The Fund will have a strong 
governance structure and will as far as possible be independent of political influence’213. 
This  target  highlighted  issues  of  potential  political  interference  in  the  past  to  the 
governance of the banking sector in Greece, as well as efforts from the part of the official 
lenders  of  the  Greek  State  to  tackle  them.  Annex  2  of  the  first  MoU  detailed  the 
establishment of the Fund including the composition of its Governing Council. Specifically, 
the Fund was initially governed by a board of directors consisting of seven members, five 
of which were appointed by the Governor of the Bank of Greece, and the last two were ex 
officio members. Two non-voting observers, one from the European Commission and one 
from  the  ECB,  were  allowed  to  participate  in  the  boards’  meetings.  In  order  to  hold  a 
position at the board of directors of the Fund, one could not be a stockholder, member of 
the board, manager, or consultant to a Greek or foreign credit institution. The ex-officio 
members held a position to the board for as long as they held the respective job position, 
while the other members could be dismissed with an act of the Finance Minister, following 
a proposal from the BoG Governor. These provisions of the HFSF law were in accordance 
with the relevant conditionality of the first MoU. Their revisions are presented in subsection 
4.5.2.2.  

In 2011 the mandate of the Fund was extended for the first time. Specifically, with Law 
No.4021/2011214,  the  HFSF  could  provide  capital  into  interim  credit  institutions.  This 
amendment enabled the Fund to take its first action, which is presented below.  

In 2015, with Law No.4340/2015215, the mandate of the HFSF on issues regarding banks’ 
governance  expanded  to  the  assessment  of  recapitalised  banks’  boards  and  their 
committees. As already presented in subsection 4.5.1.1, the HFSF proceeded in April 2016 
to an emergency evaluation, in order to implement the newly established ‘fit-and-proper’ 
criteria. This review led to the overhaul of the boards of directors and significant changes 
to  their  compositions216.  Nonetheless,  the  Fund  can  proceed  to  such  an  assessment 

211 DG ECFIN, 2010. The Economic Adjustment Programme for Greece, Occasional Papers 
61, May 2010 
212  Law  No.3864/2010,  Government  Gazette  119  A’,  21/07/2010.  Available  at: 
http://www.hfsf.gr/files/legal/01.L3864.pdf 
213 DG ECFIN, 2010. The Economic Adjustment Programme for Greece, Occasional Papers 
61, May 2010 
214  Law  No.4021/2011,  Government  Gazette  218  A’,  03/10/2011.  Available  at: 
http://www.hfsf.gr/files/legal/04.L4021_am3.pdf 
215  Law  No.4340/2015,  Government  Gazette  134  A’,  01/11/2015.  Available  at: 
http://www.hfsf.gr/files/legal/24.L4340am20.pdf 
216 DG  ECFIN,  2017.  Compliance  Report-The  Third  Economic  Adjustment  Programme  for 
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whenever it deems it necessary. The HFSF carried out a second evaluation of the banks’ 
governing bodies in 2017217. Its implementation progress is reviewed in subsection 4.5.2.3. 

With the same law, the competences of the HFSF were further broadened. Specifically, the 
Fund could provide loans to the Hellenic Deposit and Investment Guarantee Fund (HDIGF) 
for expenses associated with banks’ resolution purposes by the HDIGF. This extension of 
the mandate was introduced by the conditionality for the third programme. The same holds 
for another adding to the competences  of the  Fund. With the same law, the Fund could 
help credit institutions to the management of the non-performing loans. 

The evolution of the main changes to the mandate of the HFSF regarding its competences 
vis-à-vis the credit institutions is presented below (Figure 3.31). 

Figure 3.31  Evolution of the role of the HFSF regarding credit institutions 

Assist banks 
to manage 
NPLs (Nov. 
2015)

Provide 
loans to the 
HDIGF for 
bank 
resolution 
(Nov. 2015)

Assessment 
of BoDs and 
their 
committees 
(Nov. 2015)

Provide
equity to 
interim 
credit 
institutions 
(Oct. 2011)

Provide 
equity 
support to 
banks (July 
2010)

Up to September 2011, the HFSF had taken no action. While it had been operating since 
October 2010, up until July 2011 staffing was proceeding more slowly than planned218. In 
October 2011, the Greek Ministry of Finance announced its decision to establish an interim 
credit institution, called New Proton Bank, and to transfer the Proton Bank’s good assets 
and deposits to it. The HDIGF covered New Proton’s funding gap. After the change to its 
mandate with Law No.4021/2011, the Fund provided capital to New Proton Bank, in order 
to  bring  it  in  line  with  the  capital  adequacy  requirements  and  thus  became  its  sole 
shareholder 219. 

At the beginning of the second EAP, in February 2012, another EUR 48.8 bln from a total 
EUR 144.7 bln of financing were earmarked for bank recapitalisation. After the PSI and the 
public  debt  buyback  in  2012,  during  January  –  June  2013  period  the  first  bank 
recapitalisation was implemented. NBG, Alpha and Piraeus banks managed to raise more 
than  10  per  cent  of  their  required  capital increase.  The  HFSF  contributed  the  remaining 
amounts,  which  for  the  three  banks  totaled  to  EUR  18.6  bln.  Eurobank  opted  for  full 
recapitalisation via the HFSF and the Fund injected EUR 5.8 bln into it, becoming the main 
shareholder  with  full  voting  rights.  Overall,  the  HFSF  participated  to  the  first 
recapitalisation with EUR 24.4 bln and became the main shareholder in all four banks. The 
stock shares held by the Fund after the first recapitalisation are depicted in Figure 3.32. 

217 The contractor requested the report of the evaluation from the HFSF. It was not provided 
on the basis that it contains highly sensitive information including personal assessments 
of individual banks BoD members. 
218  DG  ECFIN,  2011.  The  Economic  Adjustment  Programme  for  Greece  –  Fourth  review, 
Occasional Papers 82, July 2011 
219  DG  ECFIN,  2011.  The  Economic  Adjustment  Programme  for  Greece  -  Fifth  review, 
Occasional Papers 87, October 2011 and HFSF, 2012, Annual Report for the financial year 
from 21/07/2010 to 31/12/2011, May 2012 

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Figure 3.32  HFSF holdings of Greek systemic banks during 2013-2018 

Alpha

Eurobank

NBG

Piraeus

100%

80%

60%

40%

20%

0%

3
1
0
2

y
a
M

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n
a
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)
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4
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5
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)
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6
1
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7
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8
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Source: HFSF annual reports 

Following the completion of the Blackrock exercise in March 2014, the ‘core’ banks proceed 
to an increase of their share capital, in conjunction with other capital actions, in order to 
cover  total  capital  needs  of  EUR  6.98  bln.  The  capital  needs  were  fully  covered  by  the 
private  sector,  which  resulted  to  a  decline  of  the  stock  share  of  the  HFSF,  especially  in 
Eurobank.  Accordingly,  the  Fund  lost  the  full  voting  rights  in  this  bank,  which  it  had 
acquired after the first recapitalisation. A new capital shortage emerged after the significant 
decline of deposits in the first six months of 2015 and the sharp increase of non-performing 
loans. The results of the ECB stress test in October 2015 showed capital needs of EUR 14.4 
bln  for  the  systemic  banks  in  the  adverse  scenario.  The  Fund  participated  to  the 
recapitalisation of the NBG and Piraeus Bank by contributing ESM bonds, of fair value of 
EUR 2.7 bln in each case. The HFSF did not participate to the capital share increases of the 
other  two  banks.  Given  the  abrupt  decline  during  2015  of  the  stock  prices  it  held,  the 
HFSF’s share value was diluted in the cases of Eurobank and Alpha Bank, while it was no 
longer the main shareholder in the two other banks.  

Up  to  the  end  of  the  third  EAP  no  further  capital  needs  for  the  ‘core’  banks  in  Greece 
emerged from stress tests conducted by the European Bank Authority in 2016 and 2018. 
The stock shares of the HFSF are unchanged since 2015. 

Summarising, during the first EAP the HFSF took almost no action, as there were significant 
delays  in  its  staffing.  The  HFSF’s  mandate  initially  focused  on  maintaining  the  capital 
adequacy of banks. Its participation to their governance was subject to a recapitalisation 
event. Even in such a case, if the Fund’s contribution to the capital increase was not above 
90 per cent, its powers were limited. The mandate of the Fund significantly broadened in 
2015.  The  new  competences  included  the  evaluation  of  the  members  of  the  governing 
bodies of recapitalised banks, participation to banks’ resolution process and facilitation of 
banks in dealing with the NPLs. The MoU for the third EAP introduced all of them, indicating 
the programme’s intention to proceed to the restructuring of the governance of the banking 
sector and deal with some significant problems that had arisen (NPLs), by strengthening 
the role of the HFSF. During the period 2010-2018, the Fund exercised had its most strong 
impact on the governance of banks through the review of the members of their governing 
bodies in 2016. 

3.5.2.4  Reforms of HFSF competence and governance 

The  powers  of  the  HFSF  in  respect  of  the  governance  of  the  recapitalised  Greek  banks 
changed significantly since its foundation. Law No.3864/2010 provided that where the Fund 
participated in recapitalisation of a credit institution with a share of up to 90 per cent, its 
only representative on the bank’s board of directors had a veto over decisions on dividend 
issuance and provision of amenities to managers and members of the board (bonuses were 

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prohibited) and on any decisions that could put an institution’ solvency or liquidity at risk. 
However, given that the HFSF had since the first and up to the third recapitalisation a share 
greater than 50 per cent, these were very constrained rights. In the case of its participation 
in a recapitalisation with a share higher than 90 per cent, the Fund’s voting rights were in 
accordance with its share.  

The  degree  of  participation  in  the  management  and  decision-making  of  a  recapitalised 
credit institution first changed with Law No.4051/2012220. The change reflect that where 
at least 10 per cent of the capital needs of a bank were covered by the private sector, the 
voting rights of the  HFSF would be restricted  to specific strategic decisions, such as the 
bank's  structure  (e.g.  mergers,  acquisitions),  its  charter  and  share  capital.  This 
amendment was prescribed in the second EAP, with the intention to ensure the de jure and 
de facto business autonomy of the recapitalised institutions221. The veto rights remained 
unchanged.  In  cases  where  the  terms  of  the  Relationship  Framework  Agreement  (RFA) 
between  the  respective  institution  and  the  HFSF  were  breached,  or  private  sector 
participation was below the 10 per cent threshold, the Fund retained full voting rights. The 
most  significant  amendment  came  in  Law  No.4254/2014,222  under  which  the  HFSF 
assumed full voting rights for stock shares acquired by any subsequent recapitalisation, 
such  as  those  from  the  2015  recapitalisation.  For  stock  shares  acquired  through 
recapitalisation prior to that, the HFSF voting rights remained limited if the private sector 
met the 10 per cent participation rate threshold. Consequently, the 10 per cent threshold 
- which was set to avoid political interference in the management of the banks and keep it 
in the hands of the private sector - was abolished for new recapitalisations in 2014. 

The mandate of the HFSF was expanded for the first time in October 2011, with Law No. 
4021/2011, which changed the bank resolution framework (see section 4.5.2.1). After this 
amendment, the HFSF could provide capital to interim credit institutions in case of a bank 
resolution and temporarily become the owner of this new ‘good bank’, until it was sold to 
a new owner. 

After  the  conclusion  of  the  second  MoU  in  May  2012,  the  RFA  between  the  HFSF  and  a 
recapitalised bank was established (see section 4.5.1.1). The RFAs were the only – albeit 
important - reform to banks’ governance during the second EAP, as they defined the HFSF’s 
role as a shareholder, notably in monitoring the implementation of the banks’ restructuring 
plans  and  safeguarding  the  banks’  operational  independence.  They  also  gave  the  HFSF 
certain approval and veto rights223. 

2015 saw perhaps the most significant changes to the mandate of the Fund with respect 
to the banking sector. Those changes were included in the conditionality for the third EAP 
and  were  enacted  by  Law  No.4340/2015.  The  most  important  reform  –  and  one  that 
significantly  affected  the  governance  of  recapitalised  banks  -  was  that  the  Fund  could 
evaluate the banks’ boards of directors and related committees. The criteria for this process 
were defined by Law No.4340/2015 and became stricter under Law No.4346/2015224 (see 
subsection 4.5.1.1). 

The same Law conferred another competence on the Fund, allowing it to provide loans to 
the  Hellenic  Deposit  and  Investment  Guarantee  Fund  (HDIGF),  for  expenses  associated 
with bank resolution. It could also help credit institutions in which it participated to manage 

220  Law  No.4051/2012,  Government  Gazette  40  A’,  29/02/2012.  Available  at: 
http://www.hfsf.gr/files/legal/06.L4051_am5.pdf 
221 DG ECFIN, 2012. The Second Economic Adjustment Programme for Greece, Occasional 
Papers 94, p. 104. 
222  Law  No.4254/2014,  Government  Gazette  85  A’,  07/04/2014.  Available  at: 
http://www.hfsf.gr/files/legal/22.L4254am18.pdf  
223  Ministerial  Council  Act  15  of  03-05-2012,  Government  Gazette  117  A’,  04/05/2012. 
Available at: http://www.hfsf.gr/files/legal/11.CA119.pdf 
224  Law  No.4346/2015,  Government  Gazette  152  A’,  20/11/2015.  Available  at: 
http://www.hfsf.gr/files/legal/25.L4346am21.pdf 

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NPLs. A special committee was created in the HFSF for this purpose, composed of members 
of the board of directors. The president was required to have at least five years’ experience 
in risk management or NPL management.  

The HFSF affected the governance of the banking sector through the numerous changes to 
its  governing  structure  and  the  relevant  election  processes.  Some  of  these  reforms  are 
considered highly significant in safeguarding the impartiality of the Fund. 

More  specifically,  the  provisions  of  Article  4  of  the  ‘HFSF  law’,  which  concerned  the 
governance  of  the  Fund  (see  subsection  4.5.2.1),  were  first  amended  by  Law 
No.4051/2012,  in  accordance  with  the  conditionality  for  the  second  EAP225.  The  most 
significant change was the establishment of a two-tier management system, comprising a 
General Council and an Executive Board. Their respective duties were outlined in the same 
law.  The  Council  consisted  of  five  members,  of  which  three  should  be  managers  with 
considerable  international  experience  in  banking,  while  the  other  two  members  were 
representatives of the Ministry of Finance and BoG. The Executive Board consisted of three 
members. The CEO and one other member were required to have considerable experience 
in banking, with the last member suggested by BoG. Considerable international experience 
was  not  further  specified  (e.g.  duration,  specific  job  position)  for  either  body,  nor  were 
additional prerequisites set for the representatives of the Ministry of Finance and BoG. An 
electoral  committee  was  established,  tasked  with  selecting  the  members  for  these 
governing bodies, consisting of members from BoG and the Ministry of Finance, with (non-
voting) observers from the European Commission and the ECB. Finally, the approval of the 
Euro  Working  Group  was  necessary  for  all  members  of  both  bodies,  except  for  the 
representatives of the Ministry of Finance and BoG. 

Further revisions to the structure of the governance of the HFSF came into effect with Laws 
No.4152/2013226  and  Νo.4254/2014,  which  increased  the  independent  members  of  the 
Council  from  three  to  five  and  then  to  seven.  These  changes  were  part  of  the  reform 
conditionality for the second and the fourth review of the second EAP227. According to the 
DG  ECFIN  report  for the fourth review, the intention was to ‘strengthen the governance 
and internal procedures of the Fund’. 

Another  major  amendment  to  the  governing  scheme  of  the  HFSF  came  from  Law 
No.4340/2015, which was based on the provisions of the MoU between the ESM and Greece 
for the third EAP228. A new procedure for the selection of the members of both the Executive 
Board and the General Council was added to the HFSF law (Article 4A). More specifically, 
the  Selection  Panel  was  established,  comprising  six  members,  three  of  whom  were 
appointed by the EU institutions (including the Chair, who held the deciding vote in split 
votes), two by the Ministry of Finance and one from BoG. The Selection Panel replaced the 
Electoral Committee introduced by Law No.4051/2012.  

To  be  nominated  for  the  Selection  Panel,  candidates  had  to  meet  almost  the  same 
conditions  as  members  of  the  Council  and  the  Board.  An  additional  clause  introduced  a 
three-year  moratorium  on  the  eligibility  of  former  stockholders  of  any  Greek  credit 
institution.  According  to  the  MoU  for  the  third  EAP,  this  reform  was  intended  to  further 
assure the impartiality of the selection process through the greater involvement of the EU 
institutions.  According  to  the  same  law,  the  Finance  Minister  appointed  the  members  of 

225 DG ECFIN, 2012. The second Economic Adjustment Programme for Greece. Occasional 
Papers 94, March 2012. 
226  Law  No.4152/2013,  Government  Gazette  107  A’,  09/05/2013.  Available  at: 
http://www.hfsf.gr/files/legal/20.L4152am16.pdf  
227  DG  ECFIN,  2013.  The  second  Economic  Adjustment  Programme  for  Greece  -  second 
review.  Occasional  Papers  148,  May  2013;  DG  ECFIN  (2014).  The  second  Economic 
Adjustment Programme for Greece - fourth review. Occasional Papers 192, April 2014. 
228 European Commission (2015). Memorandum of Understanding between the European 
Commission,  acting  on  behalf  of  the  European  Stability  Mechanism,  and  the  Hellenic 
Republic, and the Bank of Greece, August 2015. 

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both  bodies  from  a  shortlist  of  candidates  provided  by  the  Selection  Panel.  Thus,  the 
Finance Minister had a role in the selection process. This reform was also included in the 
MoU for the third EAP to Greece. 

In addition to selecting the members of the Council and the Board, the Selection Panel was 
responsible for carrying out the evaluation and dismissal processes for members of both 
governing bodies. The  creation of the  Panel established an evaluation procedure for the 
HFSF  governing  bodies  and  facilitated  the  dismissal  of  members  (previously  within  the 
purview of the Minister for Finance).   

The eligibility criteria for nomination to the General Council and the Executive Board were 
altered  by  Laws  No.4051/2012  and  No.4254/2014,  extending  the  ‘conflict  of  interest’ 
clause  of  the  HFSF  law  to  many  categories  of  civil  servants,  particularly  those  of  the 
Ministry of Finance, as well as categories of BoG employees. Consultants, managers and 
employees of Greek credit institutions were also considered as having an interest in the 
banks and were thus similarly excluded. An ownership threshold of 5 per cent of the capital 
share  of  a  Greek  credit  institution  was  defined  in  Law  No.4051/2012  also  excluded  a 
candidate from the General Council and the Executive Board, This threshold was reduced 
to EUR 100.000 by Law No.4254/2014. These changes to the eligibility criteria for the HFSF 
management were not part of the EAP conditionality. 

The second EAP and the beginning of the third EAP thus saw reform of the role of the HFSF 
in  the  governance  and  evaluation  of  the  recapitalised  banks.  These  reforms  sought  to 
gradually strengthen the very limited (compared to the stock share it held) participation 
of  the  HFSF  in  the  boards  of  directors  of  the  recapitalised  banks.  The  former  initially 
targeted  the  replacement  of  long-standing  management  teams  of  the  Greek  banks,  but 
also  established  a  timely  assessment  process.  Nevertheless,  some  of  the  criteria  posed 
significant limitations to candidateship (see sections 4.5.1.1 and 4.5.1.2). 

Amendments to the governance structure of the HFSF and the relevant selection processes 
aimed to limit political interference in the management of the Fund, as well as interventions 
from the banking sector domestically. In addition to being a breakthrough in governance 
practices in Greece, the Selection Panel is also viewed as an efficient policy action, based 
on its selection and evaluation processes. Although the Minister of Finance participates in 
the nomination of Selection Panel members, its impact on the selection process is limited. 

3.5.2.5  Assessment of the role of the HFSF and impact of changes to its 

governance on the effectiveness of the banking sector 

This subsection assesses the effectiveness of reforms to the competences of the HFSF and 
its governance on the efficiency of the banking sector. It is based on the views expressed 
during interviews with shareholders, the results of the Delphi survey, as well as evaluations 
of  the  reforms  by  well-known  international  organisations,  and  DG  ECFIN  and  the  IMF 
programme reviews. 

According  to  the  ECA  report  published  in  2017,  the  ‘original  structure’  of  the  HFSF’s 
governance model – which was designed in the context of the first programme – ‘did not 
lead  to  enhanced  independence  from  the  authorities’229.  The  report  goes  on  to  say  that 
‘despite  the  second  programme’s  condition  that  the  HFSF  should  have  a  two-tier 
management  structure  (i.e. consisting of the General Council and the  Executive Board), 
independence  issues  persisted’.  The  third  programme  addressed  this  weakness  more 
appropriately, ‘by focusing on the selection process for the  HFSF’s  senior management’, 
i.e. through the provisions of Law No. 4340/2015 on the selection procedure of the General 
Council and the Executive Board by the Selection Board. 

Despite the 2015 reform of the selection process of HFSF senior management, the ECA did 
not believe that the solutions proposed by the second and third programmes ensured an 
efficient division of responsibilities and powers between the two decision-making boards. 

229 ECA, 2017. The Commission's intervention in the Greek financial crisis, Special report 
No 17/2017, November 2017. 

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The transparency of the HFSF’s decision-making process was an additional concern, with 
the ECA report noting that ‘in 2013, the HFSF approved the sale of a majority stake in a 
bank subsidiary [the sale of New Proton Bank to Eurobank in July 2013] even though the 
transaction was not based on a competitive tendering process with multiple bidders’.  

The  reforms  to  the  HFSF  administrative  structure  led  to  frequent  changes  in  the  HFSF’s 
senior  management.  The  ECA  referred  to  changes  relating  to  ‘34  people  in  the  first  six 
years, including four chairmen and four chief executive officers’ and noted that this practice 
‘entailed a  risk  of knowledge gaps and diminished influence in the banks in which HFSF 
held shares’. 

Also  in  2017,  the  European  Commission  published  a  report  on  the  various  national 
strategies put in place to counter the effects of the 2008 financial crisis230. The report sets 
out the various approaches followed to raise capital in the banking sector to strengthen its 
capital adequacy, including the provision of state aid. Where this approach was followed, 
the report stresses that ‘while the State directly intervened to recapitalise banks in Cyprus, 
in Slovenia and partly in Portugal, specific intermediary institutions were set up to provide 
public support in Spain (FROB - Fondo de Reestructuración Ordenada Bancaria) and Greece 
(HFSF  -  Hellenic  Financial  Stability  Fund).  Those  institutions  have  different  levels  of 
independence vis-à-vis the State, with the Spanish FROB having a board with a majority 
of government representatives, the other members being from the central bank, while in 
Greece  the  majority  of  the  members  of  the  Hellenic  Financial  Stability  Fund  were 
independent and selected by an independent body (Selection Panel)’. The assessment of 
the various strategies implemented by governments to provide financial support to banks 
found that the post-2015 reform of the administrative set-up of the HFSF was considered 
to be independent and selected through a meritocratic process. The same was not true of 
similar institutions created in other Eurozone countries after the 2008 crisis. 

Continuing  with  the  interview  findings  on  the  corporate  governance  of  the  HFSF,  with 
respect  to  potential  interference  to  it  by  the  Greek  government,  one  interviewee 
representing  a  Greek  regulatory  authority  believes  that  there  were  instances  where  the 
Fund  was  influenced  by  the  will  of  the  government,  for  example  in  the  process  of 
reconstitution of the boards of directors of the banks in 2016. Despite this, the government 
did not impede the operations of the Fund generally. Another interviewee from a regulatory 
authority  expressed  the  view  that  it  was  the  HFSF  multilayered  structure/design  that 
hampered its effectiveness, rather than political inference. 

The vast majority of interviewees believe that the two-tier supervisory system introduced 
by Law No.4051/2012 was a novelty in the context of management practice in Greece, as 
particularly  in  the  banking  sector.  An  interviewee  representing  the  institutions  stressed 
that  this  governing  structure  allowed  the  institutions  (through  their  representatives)  to 
attend  board  of  directors’  meetings  as  observers  between  programme  reviews.  This 
allowed them to closely follow developments on crucial issues, such as bank recapitalisation 
and resolution. 

Three  interviewees  representing  a  Greek  regulatory  authority  believe  that  the  2015 
amendment that introduced the Selection Panel was a move in the right direction, but the 
continued existence of the General Council along with the other two bodies, burdened HFSF 
management  functioning  and  made  it  difficult  to  operate  and  make  decisions.  Two 
interviewees  (one  representing  a  Greek  regulatory  authority  and  one  representing  the 
institutions) believe that the growing mistrust between Greek authorities and the European 
Commission/ECB after 2015 left the HFSF without a CEO for over a year. The first of them 
noted that management of the Fund should have been leaner and thus more efficient, for 
example,  a  more  flexible  and  effective  CEO,  overseen  by  the  board  of  directors  or  the 
General Council. 

230  European  Commission  (2017).  Coping  with  the  international  financial  crisis  at  the 
national level in a European context. Impact and financial sector policy responses in 2008-
2015, Commission Staff Working Document, SWD (2017) 373 final, October 2017. 

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The Delphi survey results on the appropriateness of the HFSF governance model show that 
experts  are  divided  on  the  question  of  whether  the  HFSF  was  well  governed  during  the 
period 2010-2018. Overall, this view is held by 53 per cent and 47 per cent, respectively 
(Figure 3.33), while the sub-sample of the financial sector experts (N=16) are split into 56 
per cent and 44 per cent, respectively. For example, one financial sector expert observed 
that the HFSF was well governed in general, while an academic expert believes that during 
the  2010-2018  period  corporate  governance  was  typically  poor  in  the  Greek  banking 
system at the time, with the HFSF being no exception. He stated that the HFSF could have 
played a more active role had they had the necessary staff expertise.  

Figure 3.33  Delphi survey - Was the HFSF well governed over the period 2010-2018? 

Strongly disagree

0%

Strongly agree

0%

Disagree

Agree

Agree

Disagree

Strongly agree

Strongly disagree

47%

53%

0%

10%

20%

30%

40%

50%

60%

Source: Delphi survey, N=30 

As far  as the  contribution of the HFSF in monitoring and evaluating credit institutions is 
concerned,  as  already  mentioned  in  subsection  4.5.2.1.,  the  Fund  carried  out  a  second 
evaluation  of  the  banks’  governing  bodies,  which  was  completed  in  September  2017. 
Although  this  report  is  not  accessible,  for  reasons  specified  in the  same  subsection,  the 
corresponding  press  release  stated  that  ‘there  is  significant  improvement  in  the  bank 
boards’ composition, skills and focus. Additional actions are needed for the enhancement 
of risk culture and internal control framework in order to further stimulate organisational 
transformation’231. No further information was provided on the results of the review. Some 
of the DG ECFIN compliance reports for the third EAP and the reports in the context of the 
Enhanced Surveillance process that succeeded the EAP, as well as some IMF reports,  refer 
to  the  recommendations  of  the  second  evaluation  and  to  their  implementation  progress 
(see Box 3.12). 

231 HFSF, 2017. Press release on the review and evaluation of the governance framework 
and performance of the Board of Directors of the Greek Systemic Banks, September 2017. 
Available at: http://www.hfsf.gr/files/announcement_20170918_en.pdf  

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Box 3.12  Key findings from reports on the implementation of the 

recommendations of the HFSF second review of the BoDs of the 
recapitalised banks 

DG ECFIN (2018). Compliance report - the third Economic Adjustment 
Programme for Greece - third review, March 2018 

DG ECFIN stated that the four systemic banks made important governance changes after 
the  second  review  of  their  boards  by  the  HFSF,  and  that  the  reconstitution  process  is 
materially  complete.  Only  two  board  members  remained  non-compliant  with  the  new 
HFSF law criteria, despite the Fund having made all reasonable efforts for their removal. 
‘This  performance  and  governance  evaluation  provided  specific  recommendations  and 
roadmaps  for  further  governance  improvements,  focusing  on  the  risk  and  audit 
committees of the banks, and aiming to establish in parallel an evaluation culture and 
discipline  on  a  regular  basis’.  The  report  provided  no  information  on  progress  on  the 
evaluation  and  restructuring  of  these  committees.  Nonetheless,  the  fact  that  the  four 
core banks made dramatic changes within a six-month period to their boards of directors, 
indicated a strong will for administrative reform. 

DG ECFIN (2018b). Compliance report - the third Economic Adjustment 
Programme for Greece - Fourth Review, July 2018 

With  respect  to  systematic  governance  reform,  the  report  found  that  ‘more  work  will 
need to be done, primarily by the banks themselves, to further enhance their governance 
standards and practices’. The latest evaluation ‘provided specific recommendations for 
further governance improvements, which the banks are currently implementing’ aiming, 
among  others,  ‘at  improvements  in  risk  culture,  implementing  succession  plans, 
developing  robust  and  comprehensive  NPL  sales  policies,  aligning  risk  appetite 
frameworks with business strategies, developing a merit-based performance culture and 
linking  performance  with  risk-adjusted  remuneration’.  Again,  however,  the  report 
provided no information about the implementation of these recommendations. 

DG ECFIN (2018a). Enhanced Surveillance Report, Greece, Institutional Paper 
No 090, November 2018 

‘As of May 2018, out of the total 169 recommendations provided to the four banks, 65 
(38 per cent) were already closed and 89 (53 per cent) were in progress’. This is the first 
quantitative  evaluation  of  the  implementation  of  recommendations  of  the  2017  HFSF 
banks’ governance review. 

DG ECFIN (2019). Enhanced Surveillance Report, Greece, Institutional Paper 
No 099, February 2019 

‘As of December 2018, out of the 175 recommendations, 106 (61 per cent) were closed 
and 62 (35) were in progress’. DG ECFIN thus suggest that during the second semester 
of  2018,  there  was  significant  progress  in  implementing  the  recommendations  of  the 
second HFSF review. 

There  is  no  reference  to  the  implementation  of  HFSF’s  second  review  of  banks’ 
governance in the three subsequent Enhanced Surveillance reports that were published 
up to February 2020. Thus, there is no evidence if or when the recommendations of the 
review were fully implemented.  

IMF  (2018),  Greece,  2018  Article  IV  Consultation  and  Proposal  for  Post-
Program Monitoring, July 2018 

‘Bank  governance  has  improved  (boards  and  senior  management  have  been 
strengthened), but more is needed to ensure compliance with best practice standards.’ 
Subsequently,  the  IMF  considered  that  the  second  HFSF  assessment  improved  banks’ 
governance but other policy actions are needed in order to reach international standards. 
More  specifically,  ‘the  Bank  of  Greece  and  the  SSM  should  increase  their  follow-up  of 
progress in bank internal governance and related supervisory action, aiming to address 

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important operational deficiencies and loopholes in: (i) the internal control environment; 
(ii) the risk management framework; and (iii) the governance of NPL management and 
performance  practices.’  Evidently,  the  IMF  urged  the  BoG  and  the  SSM  to  take  more 
action in specific directions. 

IMF (2019c), Greece, First Post-Program monitoring discussions, March 2019 

‘Further  efforts  to  restore  banks’  capacity  for  organic  capital  generation,  including 
additional cost efficiency steps and measures to strengthen banks’ internal governance, 
would  help  to  boost  resilience  and  prospects  for  new  private  capital.’  Again,  the  IMF 
highlights  the  need  to  improve  banks’  internal  management  in  order  to  improve 
efficiency.  

IMF (2019b), Greece, 2019 Article IV Consultation, November 2019 

‘Staff  advised  that  stronger  internal  governance  would  help  improve  new  loan  pricing 
and  other  business  decisions  and  asset  liability  management.  Business  plans  should 
target more ambitious core profitability, with emphasis on increased operating income 
(e.g.,  fee-generating  business  and  digital  banking  products  and  services)  and  cost-
cutting.’  The  IMF  focuses  once  again  on  internal  management  issues  of  the  banking 
sector. 

Proceeding to the views of interviewees about the role that was assigned to HFSF in aspects 
of monitoring and evaluating credit institutions, one interviewee, representing a European 
regulatory  authority,  believes  that  the  HFSF  should  have  had  a  more  independent 
structure, as well as more voting rights in the recapitalised banks during the second EAP 
(the  Fund’s  structure  became  more  independent  under  the  third  programme).  One 
interviewee representing a Greek government authority, and another from the institutions, 
shared the view that the Fund was a backstop mechanism rather than an investor. Another 
interviewee  from  a  Greek  regulatory  authority  noted  that  the  Fund  was  acting  like  a 
minority  shareholder  despite  being  a  majority  shareholder,  which  created  a  number  of 
problems. This stance may have been designed to give incentives to the private sector or 
it may have indicated some mistrust on the part of the HFSF. The same interviewee agreed 
that the relative newsness  of the  HFSF meant  that BoG was much more involved in the 
recapitalisation process. Another role of the Fund since 2011 was to be the owner of the 
‘good bank’ in the case of a bank resolution and to increase its equity, while the national 
resolution authority, through the use of the resolution scheme of HDIGF, which -unlike the 
HFSF- was funded by contributions of the participating banks, would deal with any arising 
funding gap232. However, it soon emerged (2012) that the resolution compartment of the 
HDIGF could not cover the funding gap, resulting in an amendment to the HFSF law in the 
same  year,  so  as  the  latter  to  be  able  to  provide  capital  for  this  purpose.  Ideally,  the 
resolution scheme of the HDIGF would have been able to close the funding gap and take 
the  proceeds  of  liquidation  of  the  residual  entity,  i.e.  of  any  remaining  assets  sent  for 
liquidation.  

With  respect  to  the  involvement  of  the  HFSF  in  the  recapitalisation  of  Greek  banking 
system,  almost  all  interviewees  agreed  that  the  establishment  of  the  HFSF  and  its 
involvement in this process was the right decision. Five interviewees noted that the Fund 
played a strong constructive role in designing the recapitalisation. It also managed public 
shareholding  in  a  more  professional  and  independent  way  (compared  to  the  Ministry  of 
Finance)  and  provided  the  appropriate  tools  to  solve  problems.  Finally,  it  worked 
cooperatively  with  other  stakeholders  (i.e.  BoG,  European  institutions,  investment 
community)  and  consultants  (Deutsche  Bank,  Rothschild).  However,  one  interviewee 
representing a Greek  regulatory authority held a different view, believing that the HFSF 
was inefficient in implementing the recapitalisation, as it was passive and sought to limit 
its responsibilities. 

232 With a contribution by the deposit cover scheme of the HDIGF, in case the transferred 
assets did not suffice to cover the value of covered deposits transferred. 

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Regarding the involvement of the HFSF to bank resolutions, one interviewee representing 
a Greek regulatory authority stressed that, as per the HFSF founding law, its role in this 
issue was never very clear. He noted that the Fund’s management tried – and failed - to 
solve this problem by taking legal opinions. Some HFSF members wanted the Fund to be 
more actively involved in such procedures, while others chose to stay narrowly within the 
HFSF law framework. 

The Delphi survey results on the HFSF’s contribution to monitoring and evaluating credit 
institutions show that almost all experts (96 per cent) believe that the role of the HFSF in 
monitoring and evaluating banks to which it provided capital aid was effective/somewhat 
effective,  with  only  4  per  cent  believing  it  was  ineffective  (Figure  3.34).  The  financial 
experts  unanimously  held  that  it  was  effective/somewhat  effective,  indicating  wide 
acceptance of the supervisory role of the Fund by those affected. 

Figure 3.34  Delphi survey - How effective was the contribution of HFSF in monitoring 

and evaluating credit institutions that have received capital aid? 

Highly effective

0%

Ineffective

4%

Effective

43%

Somewhat effective

53%

0%

10%

20%

30%

40%

50%

60%

Somewhat effective

Effective

Ineffective

Highly effective

Source: Delphi survey, N=30 

57 per cent of all experts agreed/strongly agreed that the HFSF should have been a more 
active shareholder in steering the restructuring effort in four Greek systemic banks given 
its majority shareholder position in them following the first recapitalisation. The remaining 
43 per cent disagreed/strongly disagreed with this view (Figure 3.35). These shares are 
almost identical in the financial sector experts sub-sample (56 versus 44 per cent). 

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Figure 3.35  Delphi survey - Given the majority shareholder position in four systemic 

banks following the first recapitalisation, the HFSF should have been a 
more active shareholder in steering the restructuring effort in these banks 

Strongly disagree

0%

Strongly agree

10%

Disagree

Agree

Agree

Disagree

Strongly agree

Strongly disagree

43%

47%

0%

5%

10% 15% 20% 25% 30% 35% 40% 45% 50%

Source: Delphi survey, N=30 

The Delphi survey found that almost all experts (94 per cent) agreed/strongly agreed that 
it was appropriate to channel public resources via the HFSF under the first recapitalisation 
in order to prevent nationalisation of the Greek banking sector (Figure 3.36). This share 
increases to 100 per cent among the financial sector experts.  

Figure 3.36  Delphi survey – It was appropriate to channel public resources via the 

HFSF under the first recapitalisation in order to prevent nationalisation of 
the Greek banking sector 

Strongly disagree

3%

Disagree

3%

Strongly agree

27%

Agree

Strongly agree

Disagree

Strongly disagree

Agree

67%

0%

10%

20%

30%

40%

50%

60%

70%

Source: Delphi survey, N=30 

In  summary,  the  impact  of  the  HFSF  on  the  efficiency  of  the  banking sector,  as  well  as 
subsequent changes to the Fund’s governance that saw it acquire the right to evaluate the 
boards of directors of the systemic banks, was considerable and meaningful. According to 
DG ECFIN, the second evaluation of the boards of directors by the Fund led to important 
governance  changes  in  the  four  systemic  banks.  It  also  provided  recommendations  for 
further  governance  improvements,  NPL  sales  policies,  succession  plans  and  merit-based 
performance evaluations. The Delphi survey showed that almost all experts believed that 
the  HFSF  was  effective  or  somewhat  effective  in  monitoring  and  evaluating  credit 
institutions.  

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Almost all interviewees agreed that the Fund’s involvement to the first bank recapitalisation 
process was the right decision, with many considering it to have had a strong constructive 
role  in  the  design  of  that  process.  Appreciation  for  the  role  of  the  HFSF  during  the 
recapitalisation is reflected in the Delphi survey, where the percentage of respondents who 
believe that the Fund should have been more active in steering the restructuring effort of 
the systemic banks after the first recapitalisation is highest of all the responses. 

Regarding  the  views  on  the  changes  to  the  Fund’s  governance,  the  two-tier  structure 
introduced in 2012, was considered a novelty in the context of management practices in 
Greece,  while  the  introduction  of  the  Selection  Panel  was  seen  as  a  reform  in  the  right 
direction.  Nevertheless,  this  multi-level  structure  was  viewed  by  some  respondents  as 
complicating HFSF operations and decision-making. These differing views on the changes 
to the HFSFs’ governing structure are reflected in the Delphi survey results, with experts 
divided on the question of whether the HFSF was well governed in the period 2010-2018. 

Concerning interference issues of the State’s to the HFSF functioning, despite the fact it 
could  express  its  view  via its  representatives  on  all  of  the  Fund’s  governing  bodies,  the 
interviews  revealed  that  there  were  attempts  to  influence  the  members  of  the  General 
Council. Some interviewees noted, however, that it was the HFSF’s complex governance 
structure/design that hindered its effectiveness, rather than political inference. 

The ECA assessed the HFSF’s governance structure during the first two EAPs, noting that 
it  faced  significant  independence  issues  from  the  authorities.  The  introduction  of  the 
Selection Panel was considered an effective way to deal with political interference. 

According to the ECA, the transparency of the  HFSF’s decision-making process was also 
cause for concern.  

4 

Conclusions 

The following section presents a summary of the key conclusions for each of the study 
question. 

  Study  question  1:  To  what  extent  did  the  programme  analyse  appropriately  the 
banking sector risks existing before the 1st programme (including those related to 
banks’ governance, business model, ownership structure, credit, provisioning and 
investment policies, asset and liability structure), with the information at hand at 
the time and given the international financial markets context?  

  Study question 2: What were the main reasons behind the acute liquidity needs of 
the Greek banking sector throughout the entire three Programmes? How successful 
were  the  measures  taken  in  maintaining  liquidity,  restoring  confidence  (investor, 
depositor, interbank), and protecting financial stability?  

  Study question 3a: What were the main reasons for the significant capital losses of 
Greek banks? What was the impact of the Private Sector Involvement (PSI) on the 
Greek financial sector and banks in particular?  

  Study question 3b: How effective were the measures taken under the programme 
to  stabilise  the  sector  and  the  individual  banks  (e.g.  recapitalisations,  bank 
resolutions) and restore adequate capitalisation?  

  Study  question  4a:  What  were  the  most  important  reasons  behind  the  large  and 

persistent increase in NPLs in Greece?  

  Study question 4b: To  what extent were programme policies adequate in limiting 
the  initial  build-up  of  the  NPL  portfolio,  given  the  underlying  conditions? 
Subsequently,  were  programme  policies  adequate  in  facilitating  effective  NPL 
resolution and reduction?  

  Study question 5a: To what extent were programme policies adequate to improve 

the governance of Greek banks?  

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  Study question 5b: To what extent has the Hellenic Financial Stability Fund (HFSF) 

played an effective role in this regard? 

4.1  Study question 1 

  Soundness  of  the  Greek  banking  sector  prior  to  the  crisis:  Although  not 
immune to the initial blow from the global financial crisis and with some underlying 
vulnerabilities,  the  Greek  banking  sector  was  generally  considered  to  have  sound 
fundamentals at the outset of the crisis and unlike in some other countries, in Greece 
the crisis did not originate in the banking sector; 

  Surveillance of the financial sector: Prior to the financial crisis, the surveillance 
of the financial sector in the EU country surveillance system was less intensive. And 
this applied to Greece as well as other EU Member States;  

  Sources  of  information  feeding  into  diagnostics:  The  situation  in  Greek 
financial  sector  received  greater  attention  of  the  institutions  already  in  2009, 
including BoG and  IMF  staff stress tests conducted in H1 2009 that subsequently 
fed  into  the  conceptualisation  of  the  first  EAP.  Furthermore,  off-side  diagnostics 
were  subsequently  complemented  by  technical  missions  of  the  European 
Commission, ECB and IMF staff that took place between January 2010 – April 2010. 
In addition, the institutions took appropriate and timely measures to strengthen the 
supervisory capacity of the BoG and increase the scope, frequency and granularity 
of the supervisory data as one of the first measures under the first EAP; 

  Type  of  data  feeding  into  diagnostics:  Diagnostics  prior  to  the  first  EAP  were 
done mostly based on the publicly available data. Once the first EAP began, the use 
of supervisory data from the BoG e.g. daily reporting on liquidity positions of banks 
and data on NPLs became far more prevalent; 

  Coverage of risks in selected surveillance documents: The study did not cover 
the  BoG  and  institutions’  diagnostics  work  of  which  results  were  not  publicly 
available.  Though,  the  review  of  some  publicly  available  surveillance  work  of  the 
BoG,  European  Commission  and  the  ECB    shows  that  the  coverage  of  the 
comprehensive  set  of  risks  was  not  comprehensive  enough,  with  some  risks 
receiving no or only little coverage in the reviewed publications and some signs of 
underestimation of the gravity of situation in the Greek financial sector. Of the three, 
the IMF publications were the most comprehensive; 

  Sovereign  banking  feedback  loop:  In  retrospect,  the  risk  stemming  from  the 
sovereign-banking feedback loop turned out to be one of the most critical factors 
affecting  the  liquidity  and  solvency  of  Greek  banks.  The  key  issues  such  as  high 
exposure of banks to GGBs and implications of the deteriorating fiscal stance of the 
state were well understood by the institutions. However, the recognition of the full 
magnitude of this risk was delayed, partly due to an underestimation of the impact 
of fiscal consolidation measures on the whole economy that then trickled down to 
the  banking  system.  More  generally,  the  high  exposure  to  GGBs  was  broadly 
acknowledged as a vulnerability factor ex post, but the discussions at that time had 
less focus on the reasons behind such higher exposure ex ante; 

  Constraints  for  the  diagnostics:  Overall,  the  study  did  not  find  any  major 
constraints to the analysis of the risks in the Greek banking sector prior to the first 
EAP,  notwithstanding  the  issue  of  macroeconomic  projections.  While  fiscal  and 
national accounts data turned out to be inaccurate, this was not the case for financial 
data.  The  scope,  frequency  of  the  data  provision  and  reliability  of  the  available 
financial statistics underpinning diagnostics and provided by the BoG to the three 
institutions were found as adequate. 

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4.2  Study question 2 

  Key  reasons  behind  the  acute  liquidity  needs:  From  2009  when  the  Greek 
sovereign crisis erupted, Greek banks faced increasing liquidity pressures due to (i) 
downgrading  which  led  initially  to  a  limited  access  and  later  to  a  complete  shut-
down of wholesale market funding, (ii) uncertainty including double elections in mid-
2012  and  political  uncertainity  under  SYRIZA  government,  and  recurrent  Grexit 
fears  which  led  to  an  outflow  of  deposits,  (iii)  Collateral  for  participating  in  the 
Eurosystem’s  monetary  policy  operations  took  a  hit  both  in  value  as  well  as  in 
eligibility status; 

  Key  measures  allowing  to  maintain  the  liquidity  and  restore  confidence: 
Throughout the crisis Greek banks were heavily reliant on the Eurosystem to meet 
their liquidity needs, initially via the ECB’s open market operations and overtime, 
via the ELA (as  wholesale funding markets remained closed and banks’ access  to 
Eurosystem refinancing suffered due to a lack of eligible collateral. ELA funding was 
a major source of bank liquidity in 2012–13 and in 2015-mid- 2018, when it was 
also combined with capital controls (following the announcement of the referendum 
in June 2015). Access to ELA and the introduction of capital controls in 2015 were 
critical  in  preventing  a  collapse  of  the  Greek  banking  system.  There,  however, 
remains a question mark whether the capital controls were justified over a four-year 
period,  although  the  still  fragile  liquidity  profile  of  Greek  banks  prior  to  2019 
suggested that there would have been a degree of risk for the authorities to lift the 
capital controls earlier.  

4.3  Study question 3a 

  Banks’  exposure  to  GGBs:  The  exposure  of  Greek  banks  to  GGBs  was  already 
high before the financial crisis, but it still kept rising in the run up to the PSI in 2012. 
This eventually amplified the direct impact of the PSI on Greek banks’ balance sheet, 
albeit  it  should  be  noted  that  similar  trend  of  domestic  banks  increasing  their 
portfolio of government bonds during the initial stage of the crisis was also observed 
in other program countries and Greece was not an exception; 

  Explanation for ‘home bias’ of Greek banks: There is no single explanation for 
this  ‘home  bias’  of  Greek  banks,  though  the  existing  evidence  points  to  the 
government  pressure  as  one  of  the  most  important  factors.  Likewise,  the 
government pressure may also explain (to considerable extent) why Greek banks, 
contrary  to  foreign  banks,  did  not  benefit  from  the  opportunity  of  the  ECB  SMP 
facility to offload the GGBs prior to the PSI. This sheds some light on the commonly 
raised (and contentious) question on why foreign banks (in particular French and 
German banks) reduced their exposure to Greek debt to a far larger extent than the 
Greek banks;   

  Main  reasons for  the  significant  capital  losses  of  Greek  banks:  PSI-related 
losses, reduction in the value of GGBs due to sovereign downgrades, impairment of 
the  assets  side  of  the  banks’  balance  sheet  because  of  NPLs,  Grexit  and  related 
currency redenomination fears that led to deposit and funding outflows were among 
the  key  factors  eroding  banks’  capital  bases.  In  addition,  banks’  profitability  was 
also severely affected by increases in the cost of funding, negative contribution of 
international operations of some banks and overall fall in volume of transactions; 

  Effectiveness of negotiations and execution of the PSI: Most of the evidence 
suggests that the negotiations and execution of the PSI were relatively successful, 
despite  exceptionally  challenging  environment  and  sui  generis  and  complex 
character  of  the  exercise.  Timing  of  the  PSI  and  the  exclusion  of  some  public 
bondholders  are  two  specific  issues  that  have  attracted  some  criticism  in  the 
literature and throughout the consultation process; 

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  Estimation of the direct impact of the PSI: Although estimating the direct and 
precise impact of the PSI was possible only in early 2012 given ongoing negotiations 
on  the  terms  of  the  PSI  (including  hair-cut  level),  conceptually  the  exercise  was 
fairly  straightforward.  In  view  of  the  staff  involved  in  the  exercise,  gauging  the 
impact of the PSI on Greek banks was far less challenging compared to modelling 
other  impacts  e.g.  potential  losses  of  the  loan  portfolios  due  to  recession  and 
effective recovery rate of the collateral held by banks;  

  Direct  impact  of  the  PSI  on  banks:  As  a  result  of  the  PSI,  Greek  banks 
experienced total losses of EUR 37.7 bln in their holdings of bonds (of which EUR 
28.2 bln was held by four systemic banks) and other loans to the Greek state. This 
represented 10 per cent of their total assets, or 170 per cent of their total Core Tier 
I capital at that time, while the banks’ provisions  set aside  for PSI-related losses 
were  only  EUR  5.8  bln.  Therefore,  banks  net-of-provision  losses  from  Greece’s 
sovereign default were EUR 31.9 bln wiping out their capital base and leaving some 
of the largest banks insolvent and others seriously undercapitalised. In addition, PSI 
accounted (indirectly) for some of the projected losses on the banks’ private sector 
loan  portfolios  due  to  its  recessionary  impact233.  As  a  result  of  the  PSI,  the  first 
recapitalisation was needed; 

  Direct  impact  of  the  PSI  on  pension  funds  and  insurance  companies:  The 
Greek  pension  funds  suffered  total  losses  of  EUR  11.9  bln  as  a  result  of  the  PSI. 
Contrary  to  the  banks,  those  were  not  recapitalized,  thought  they  kept  receiving 
very sizable grant support from the state on the annual basis that offset the impact 
of the PSI. In turn, the estimated losses from the PSI to the insurance sector were 
in  the  range  between  EUR  2  bln  and  EUR  3  bln  leading  to  some  bankruptcies  of 
smaller insurers; 

  Relative impact of the PSI on the market confidence: While the PSI did have 
a  negative  impact  on  confidence  in  2011  and  2012  contributing  also  to  deposits’ 
outflows, the evidence suggests that its effect was relatively contained and instead 
it was a political uncertainty related also to double-elections in May-June 2012 that 
was  a  primary  factor  behind  the  drop  of  confidence  between  mid-2011  and  mid-
2012; 

  Impact  of  the  PSI  on  banks’  credit  ratings:  The  PSI  contributed  to  the 
downgrades of Greek banks and affected market confidence in the short-term. In 
the  medium/long-term,  however,  the  PSI  could  have  some  positive  impact  given 
the  fact  that  it  improved  the  fiscal  stance  of  the  state  which  in  turn  determines 
strongly the ratings of domestic banks;  

  Timing  of  the  PSI:  From  a  macroeconomic  perspective,  it  would  have  been 
beneficial to front-load the PSI with the perception of markets restored earlier, more 
limited  contribution  to  the  currency  re-domination  fears,  larger  stock  of  debt 
available  for  the  hair-cut  and  consequent  sizable  savings  for  the  state  stemming 
from the high cost of borrowing and debt servicing. Majority of Delphi respondents 
and number of interviewees were of a view that PSI could have been better timed. 
Yet, there were also number of major constraints at the time that may provide some 
explanation why the PSI did not occur faster, such as (i) lack of political will to resort 
to sovereign debt restructuring while there was still hope that the programme would 
be  sufficient  to  restore  stability,  (ii)  concerns  about  the  negative  impact  on  the 
assets  of  social  security  funds,  the  banking  sector  (including  contagion  to  other 
Eurozone  members)  and  private  investors  in  Greek  government  securities,  (iii) 
moral hazard considerations, (iv) the lack of appropriate tools at EU level, and (v) 
the unprecedented scale and complexity of the PSI.  

233 Reduced capacity of banks to lend. 

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4.4  Study question 3b 

  Approach to restructuring of the Greek banking sector: The study found that 
an  approach  to  restructuring  the  Greek  banking  system  that  hinged  on  the 
safeguarding of four systemically important ‘core banks’, while closing the weakest 
and poorly managed banks so that only sufficiently sound operations would get state 
support was sound; 

  Frameworks and resolution tools guiding the restructuring: In terms of the 
frameworks and resolution tools guiding the design and implementation of the three 
recapitalisations and series of resolutions, there was limited formal material in place 
at the time of the first and second recapitalisation and initial resolutions. While the 
lack of  comprehensive  guidelines and resolution tools during the first  and second 
recapitalisations did not offer the authorities and the institutions a clear path on how 
to  proceed,  it  was  not  found  problematic  by  the  interviewed  authorities  and  the 
three institutions’ staff and it allowed considerable flexibility in designing the first 
and second recapitalisations and resolutions, something that would not have been 
possible following the introduction of the BRRD;   

  Estimation of the costs of the recapitalisations and resolutions: Involvement 
of  the  BlackRock  in  the  estimation  of  the  credit  loss  projections  for  Greek  banks 
under the first and second recapitalisation ensured higher transparency and reduced 
the risk of an interference in the exercise. In hindsight, capital needs of banks were 
somehow underestimated, but this was mainly a result of the prolonged and severe 
recession  as  well  as  some  exogenous  factors,  such  as  uncertainty  brought  by 
SYRIZA  government,  that  could  have  been  hardly  anticipated  at  the  time  when 
estimates  were  being  derived.  The  study  also  found  that  had  the  first  BlackRock 
AQR happened earlier than 2012, it would likely have added limited value, given the 
lack of clarity on the form and size of the PSI in 2010/ early 2011 and underlying 
inaccurate macroeconomic projections;   

  Financial stability of the Greek banking system: Despite this challenging (and 
continuously  uncertain)  backdrop,  the  financial  stability  of  the  system  was 
preserved, with 14 credit institutions resolved and four systemically important banks 
recapitalised. This was effected without the major disruption that would have been 
caused by disorderly bankruptcies or market jitteriness due to poor design or lack 
of swift and transparent implementation. Yet, banks remained fragile and for several 
years served their role as a channel of funding towards the real economy to a limited 
extent only; 

  Losses of private depositors: In the Greek context, all of the individual depositors 
were preserved, irrespective of their size and type. The decision to stick to the policy 
decision  to  fully  protect  depositors  while  resolving  14  non-viable  banks  and 
recapitalising four others was warranted from a financial stability perspective and 
the task of achieving it should be acknowledged as one of the positive outcomes of 
the restructuring; 

  Cost  of  restructuring  of  the  Greek  banking  sector:  Restructuring  the  Greek 
banks came at a very high cost, even though given the negative equity of virtually 
all banks following the PSI, it was well understood that the state would need to incur 
some losses to attract private investors. Under the third recapitalisation, the choice 
of recapitalisation with no effective minimum price set succeeded in minimising new 
taxpayer funding at the cost of complete dilution of the Greek taxpayers’ existing 
stake in the four systemic banks. The extent of losses suffered is evident by the fact 
that the EUR 25.5 bln injected by HFSF in banks in May 2013 were worth EUR 747 
mln in November 2015. 

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4.5  Study question 4a 

  Primary  reason(s)  behind  the  high  and  persistent  NPLs:  The  deepening 
recession and ongoing political uncertainty were the main factors behind the sharp 
rise in NPLs since the first quarter of 2012; 

  Other  reasons  behind  the  high  and  persistent  NPLs:  other  relevant  reasons 
included  insufficient  work-out  capacity  of  Greek  banks,  legislative  changes  which 
contributed  to  a  deterioration  of  payment  discipline  (notably  Katseli  Law),  weak 
payment culture, a lengthy and inefficiency judicial system; the lack of a secondary 
NPL  market,  absence  of  legal  infrastructure  for  NPL  resolution;  and  loose  credit 
conditions prior to the crisis.  

4.6  Study question 4b 

  Effectiveness of measures implemented: A number of important reforms were 
implemented  to  reduce  NPLs,  including  a  strengthening  of  the  supervisory 
framework  by  setting  operational  targets  for  NPL  reduction,  the  creation  of  a 
secondary NPL market including e-actions, and the removal of various legal, judicial 
and  administrative  barriers  to  the  management  of  NPLs.  However,  there  with 
shortcomings in their implementation and the direct impact has been modest. For 
example,  the  use  of  OCWs  and  in-court  restructurings  by  banks  and  borrowers 
remains  limited.  The  underlying  insolvency  regime  remains  ineffective  due  to 
institutional  inefficiencies  and,  in  the  case  of  household  insolvency,  poor  legal 
design; the share of failed auctions remains high. Rather than scaling back primary 
residence protection, a mortgage subsidization scheme was adopted in April 2019 
that perpetuates the weak payment culture;  

  Impediments to the NPLs resolution: NPLs resolution was impeded by delays or 
lack  of  progress  on  significant  NPLs  reforms.  The  study  found  that  there  were 
diverging  views  regarding  the  timeliness  of  the  program  policies  to  tackle  NPLs. 
Irrespective  of  that,  the  most  important  reforms  related  to  NPLs  began  in  2015. 
Insufficient political will at domestic level to tackle NPLs decisively was an important 
factor in the Greek context, particularly prior to the third programme; 

  Turnaround  in  the  NPLs  resolution:  There  have  been  some  recent  positive 
developments. The pace of NPL reduction has recently accelerated and the topic is 
high on the political agenda.  The government  has created a new Deputy Minister 
position  to  oversee  bank  reform.  Banks  have  agreed  more  ambitious  new  NPL 
reduction targets (the Prime Minister has called for even further acceleration)  and 
the ‘Hercules’ asset protection scheme has progressed; 

  Current outlook: However, addressing NPLs will remain a challenge for some time 
and  be  important  for  supporting  a  sustained,  robust  economic  recovery.  A  more 
ambitious and comprehensive strategy is required to tackle the issue. 

4.7  Study question 5a 

  Corporate  governance  policies  under  the  first  EAP:  The  first  EAP  did  not 
include direct measures to change the governance framework of the Greek banks. 
Yet,  according  to  the  first  MoU  between  Greece  and  the  three  institutions,  the 
possibility  of  restructuring  a  bank’s  governance  was  introduced  in  mid-2010  with 
the founding law of the HFSF, in the event of a recapitalisation involving the Fund; 

  Voting  rights  of  the  HFSF:  Only  in  cases  where  the  HFSF’s  stake  in  a  bank 
exceeded  90  per  cent  were  the  Fund’s  voting  rights  in  line  with  other  ordinary 
shares, otherwise HFSF’s rights were very limited. This was intended to avoid State 
interference in the management of the recapitalised banks. This suggests that from 
the launch of the first programme, the institutions were concerned about potential 
State intervention in the governance of the banking sector.  The low participation of 

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the  HFSF  in  banks’  governance  was  also  intended  as  a  sweetener  for  private 
investors; 

  Corporate  governance  policies  under  the  second  EAP:  The  establishment  of 
the RFAs was the only – albeit important - reform to banks’ governance during the 
second  EAP.  The  RFAs  and  their  amendments  defined  the  HFSF’s  role  as  a 
shareholder, notably in monitoring the implementation of the banks’ restructuring 
plans  and  safeguarding  the  banks’  operational  independence.  They  also  gave  the 
HFSF certain approval and veto rights. Also, the 2010 HFSF law provision concerning 
participation in the banks’ boards in case of a recapitalisation was activated in the 
context  of  the  first  recapitalisation  of  the  four  systemic  banks  (first  semester  of 
2013).  This  was  the  first  case  of  an  explicit  change  to  the  governance  of  a  bank 
stemming from the programme policies;  

  Progress  in  corporate  governance  reforms  under  the  first  two  EAPs:  The 
programmes’ evaluations conducted by the IMF and ECA concluded that little was 
done during the first two EAPs to evaluate and restructure the governing bodies of 
the Greek banks. The  IMF believes that this may have negatively affected banks’ 
ability to attract capital and confront asset quality problems (e.g. rising NPLs). The 
study confirmed that few policies targeting the restructuring of the management of 
the banking sector were designed or implemented during the first two EAPs. On the 
other hand, some of the stakeholders interviewed noted that the limited role of the 
HFSF  in  the  governing  bodies  of  the  banks,  even  after  their  first  recapitalisation, 
was  a  result  of  the  relevant  provisions  in  its  statute.  Their  purpose  was  that  the 
Fund should act as a backstop mechanism against nationalisation. Other purposes 
were to attract private investors and avoid increasing uncertainty among depositors 
and investors from a radical change of banks’ management; 

  Progress in banks’ corporate governance reforms under the third EAP: The  
most  important  changes  to  the  management  of  the  Greek  banks  came  at  the 
beginning of the third EAP, through the HFSF review of the boards and committees 
of the four systemic banks, with newly established and strict criteria (so called ‘fit-
and-proper’ rules);  

  Relevance  of  ‘fit  and  proper’  rules:  Although  some  changes  were  suggested, 
there is widespread consensus in the literature, among the stakeholders interviewed 
and  the  Delphi  panel  on  the  relevance  of  the  ‘fit-and-proper’  criteria.  They  are 
considered  to  have  strengthened  the  independence  of  the  boards  vis-à-vis  the 
political  system  and  vested  interests.  Another  purpose  was  to  staff  the  boards  of 
directors  with  members  highly  experienced  in  international  banking,  which  would 
help banks to confront the multiple problems they faced at that period; 

  Principle  of  the  State  at  arm’s-length:  The  policies  concerning  the  financial 
sector throughout the three EAPs clearly show that safeguarding banks’ corporate 
governance from political interference was consistently prioritised across the three 
programmes.  

4.8  Study question Q5b:  

  HFSF’s  statutory  role  in  banks  governance:  Since  its  foundation,  the  HFSF’s 
mandate focused de facto on maintaining the capital adequacy of banks rather than 
participating actively in their governance. During the first EAP, the Fund took almost 
no action and had no role in the management of banks; 

  Governance structure of the HFSF during the second EAP: At the beginning of 
the second EAP, the HFSF’s governance was modified, with the introduction of the 
two-tier structure (General Council - Executive Board). The interviewees considered 
this reform a novelty in the context of management practices in Greece, including 
the  banking  sector.  This  was  dictated  by  the  need  to  reduce  the  risk  of  political 
interference in HFSF functioning;  

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  Degree of involvement of the HFSF: Most Delphi survey participants agree that 
the  Fund’s  limited  active  involvement  in  the  management  of  recapitalised  banks 
through  their  voting-veto  rights,  was  the  right  decision.  However,  most  also  feel 
that the Fund should have been more active in steering the restructuring effort of 
the  systemic  banks  after  the  first  recapitalisation.  The  study  findings  support  the 
idea  that  this  could  have  been  achieved  in  part  through  either  the  RFAs  or  their 
amendments;   

  Reforms to the HFSF’s role under the third EAP: The competences of the Fund 
broadened  significantly  as  a  result  of  the  third  EAP,  including  aspects  such  as 
evaluation  of  the  members  of  the  governing  bodies  of  recapitalised  banks, 
participation in banks’ resolution processes, and supporting banks in dealing with 
the NPLs;  

  Rearrangement of the HFSF role in the banking sector: The study considers 
the assignment of competence in restructuring the governance of the banking sector 
and addressing some key problems (e.g. resolutions, NPLs) to indicate the intention 
of the third programme to strengthen the role of the HFSF rather than assign more 
competence to other authorities, such as the BoG;  

  Governance structure of the HFSF during the third EAP: The introduction of 
the  Selection  Panel  into  the  HFSF’s  structure  was  seen  as  a  reform  in  the  right 
direction  (some  interviewees,  the  ECA,  European  Commission),  given  that  it 
enhanced  independence  from  the  authorities.  Nevertheless,  this  modification 
apparently reduced the efficiency of HFSF proceedings;  

  Most  impactful  reform(s)  to  banks’  governance:    The  study  considers  that 
during  the  period  2010-2018,  the  Fund’s  strongest  impact  was  on  improving  the 
efficiency  of  banks’  governance  through  the  review  of  their  governing  bodies  in 
2016, with the ‘fit-and-proper’ criteria;  

  HFSF’s role in recapitalised banks throughout the EAPs: The study found that 
the  HFSF  impacted  banks’  governance  mainly  through  certain  processes  (e.g. 
evaluation with the ‘fit-and-proper’ criteria), with participation as a shareholder in 
their governing bodies proving far less significant. 

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Annex 1  Methodological approach 

A1.1 

Study design 

The study was designed to respond to a specific set of questions, as set out in the Terms 
of Reference. A step-by-step methodology was developed to guide the choice and design 
of  specific  research  methods,  as  well  as  to  provide  a  framework  for  subsequent  data 
analysis and interpretation (see Figure A1.1). It considered: 

  The questions addressed by the study; 

  The evidence required to answer each study question; 

  The data sources and methods used to compile the required evidence;  

  The judgement criteria on which the study conclusions are based. 

Figure A1.1 

Overview of the step-by-step methodology 

Source: ICF 

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A1.2 

Methods and data sources 

Table  A1.1  below  provides  a  high-level  overview  of  the  data  collection  methods  and 
analytical techniques used to address each study question. The application of each of these 
methods is described in the sub-sections that follow.  

Table A1.1  Overview of the methods and techniques used for the study  

Document and data 
review 

Key informant / 
stakeholder interviews 

Q1 

Q2a  Q2b  Q3a  Q3b  Q4a  Q4b  Q5 

●●●  ●●● 

●●● 

●● 

●●●  ●● 

●● 

●● 

●● 

●● 

●● 

●●●  ●● 

●●● 

●●● 

●●● 

Delphi survey 

● 

● 

● 

● 

● 

● 

● 

● 

●●● very important method for addressing the study question 

●● important method for addressing the study question 

● complementary method 

A1.2.2 

Document and data review 

Table  A1.2  provides  an  overview  of  the  main  publicly  available  documentation  collected 
and  reviewed,  together  with  their  usefulness.  A  full  list  of  reviewed  documentation  is 
available in Annex 3. 

Table A1.2  Overview of documentation reviewed 

Source of 
documentation 

Type of documentation 

Usefulness  

European Commission, 
DG ECFIN 

Memoranda of Understanding (MoU) for three 
EAPs; 

Directorate General Economic and Financial 
Affairs (DG ECFIN) implementation reviews 
underpinning the first two EAPs; 

European Stability Mechanism (ESM) 
compliance reports underpinning the third 
programme; 

Staff statements following the subsequent 
reviews; 

Selected DG ECFIN occasional papers; 

DG ECFIN economic forecasts; 

DG ECFIN quarterly reports on the Euro area; 

Other reflection papers and staff working 
documents; 

Greek Strategy for the Financial Sector 
(2012); 

Evaluation of Cypriot, Irish, Spanish and 
Portuguese Adjustment Programmes; 

●●● 

European Commission, 
DG FISMA 

DG FISMA financial sector review (2017) 

● 

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Source of 
documentation 

Type of documentation 

Usefulness  

ECB 

IMF 

Bank of Greece 

Moody’s communication 

Other 

●●● 

●● 

●●● 

Financial stability reports (2009-2018); 

Aggregate report on the Greek comprehensive 
assessment (2015) 

Country reports (2009-2018); 

Selected issue papers on Greece (2009) 

Ex post evaluation of exceptional access under 
the 2012 extended arrangement (2017) 

Report on the recapitalisation and 
restructuring of the Greek banking sector 
(2012); 

Stress test of the Greek banking sector 
(2013); 

Annual reports (2009-2011) 

Financial stability reviews (2009-2011); 

Monetary policy reviews (2008-2011). 

Working paper on moral hazard and strategic 
default (2016); 

The chronicles of the great crisis: 2008-2013 
(2014). 

Sector comments and downgrades 
communication for Greek sovereign and main 
Greek banks (2009-2018) 

●● 

European Court of Auditors (ECA): Evaluation 
of Commission’s intervention (2017); 

●● 

ESM evaluation of the adjustment 
programmes (2017); 

Bain & Co: Report to the Bank of Greece 
(2013); 

BlackRock Solutions: Diagnostic assessment of 
Greek banks (2012); 

World Bank (WB): Study on bank resolution 
and bail-in (2017); 

HFSF: Report on large corporate NPL 
resolution project (2014); 

Sample of articles from economic and financial 
press e.g. Financial Times (FT) and the 
Economist; 

Selected academic literature and publications 
produced by selected think-tanks. 

In  addition,  the  study  team  was  granted  access  to  limited  non-publicly  available 
documents,  notably  extracts  from  policy  briefs  prepared  by  DG  ECFIN  staff  following 
subsequent reviews of the EAPs.  

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The  study  team  compiled  and  reviewed  key  financial  and  macroeconomic  data  and 
indicators from international and national sources (e.g. IMF WEO April 2019, World Bank 
Open Data, EBA, ECB, BoG, ESTAT, stock market index in Athens, and the Greek Ministry 
of Finance). Table A1.3 below provides an overview. 

Table A1.3  Key indicators and data sources 

Component 

Data Type 

Description 

The real 
economy 

National 
accounts 

Indicators of macroeconomic  

Performance, including:  

GDP and its components 

Consumer Price Index (CPI)  

unemployment/employment 

Balance of Payment (BoP)  

fiscal statistics  

Liquidity, 
stability, 
capitalisation, 
NPL resolution 

Monetary, 
banking and 
financial account 
statistics 

Indicators such as:  

banks’ capitalisation 

borrowing needs 

wholesale funding costs 

deposit volumes 

lending volumes 

banks’ capital (CET 1 capital) 

NPL ratios (disaggregation for 
specific components) 

volume of NPLs sold on the 
secondary market (2017-
2019) 

banks’ exposure to GGBs 

Key data 
source(s) 

Eurostat, ELSTAT, 
Central Bank and 
major international 
sources (e.g. IMF 
WEO and World 
Bank data) 

Ministry of Finance, 
BoG and major 
international 
sources e.g. Bank 
of International 
Settlement (BIS), 
ECB, EBA, IMF) 

Market 
confidence 

Market indexes  banks’ stock market index in 
Athens (FTSE Greek Banks),  

uncertainty indices234 (news-
based) 

house price index  

Stock market data, 
Ministry of Finance, 
Bank of Greece, 
HKKS, 

and major 
international 
sources (e.g. BIS, 
ECB, EBA, IMF) 

A1.2.3  Interview programme 

Overall, 20 in-depth interviews were conducted with the key informants and stakeholders. 
Interviews  were  conducted  either  face-to-face  namely,  scoping  interviews  with  the  EC 
officials based in Brussels and the interviews with the Greek stakeholders based in Athens 
during  3  days’  mission  that  took  place  in  March  2020,  or  over  the  phone  with  all  other 
stakeholders. The interview transcripts were validated by the stakeholders prior to the final 

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analysis. In addition, written follow-up took place at the last stage of the project involving 
ten  already  interviewed  stakeholders  from  the  BoG,  EC,  ESM  and  private  sector 
organisations.  Those  were  requested  to  provide  additional  insights/  clarifications  (via 
email) on selected outstanding issues.  

Table  A1.4  shows  the  number  and  type  of  stakeholders  interviewed  throughout  the 
programme (see Annex 2 for detail). Where interviewees had moved from the institutions 
where they worked during the crisis to new roles (e.g. in private sector organisations), the 
responses  reflect  their  original  organisations,  given  the  relevance  of  insights  from  that 
time.    

Note that out of three interviewees invitations send to the IMF staff235, two led to the actual 
interviews  while  in  one  case  the  Fund  provided  the  written  responses.  Representatives 
from the ECB did not respond to the invitation to contribute to the study. This is rather 
unfortunate  as  the  ECB  was  a  key  player  in  the  Greek  programmes  and  particularly, 
banking sector reforms and measures. 

Table A1.4  Overview of interviews  

Stakeholder Group 

ESM  

European Commission 

IMF 

Bank of Greece 

HFSF 

Ministry of Finance 

Relevant national associations 

Other 

Total 

No of interviews 

2 

3 

2 

3 

3 

1 

3 

3 

20 

The interviews were generally of high quality, with the interviewees proving well informed, 
well prepared and candid in expressing their perspectives.  

In some instances, the stakeholders struggled to recall specific context or feature(s) of the 
programmes at the time. For that reason, on number of occasions, the study team followed 
up with additional questions (via an email or brief phone call) to clarify and/or expand on 
selected issues discussed. 

Stakeholder  consultation  followed  the  principles  set  out  in  the  Better  Regulation 
Guidelines236. 

235 Including one former IMF staff member  
236  European  Commission,  2016.  Better  Regulation  Guidelines.  Available  at: 
http://ec.europa.eu/smart-regulation/guidelines/toc_guide_en.htm   

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A1.2.4  Delphi survey 

The  Delphi  survey  sought  to  establish  views  of  selected  experts  on  the  causes  and 
consequences  of  the  banking  sector  crisis  in  Greece,  as  well  as  the  effectiveness  of  the 
policy responses and reforms. Participants were asked for their views on the adequacy of 
diagnostics  prior  to  the  crisis,  key  factors  behind  the  liquidity  and  solvency  problems 
(including the PSI) faced by Greek banks, persistently high NPLs, aspects related to the 
HFSF, and corporate governance of the national banks. The structure of the questionnaire 
was largely driven by the insights gathered during key informant interviews, discussions 
with  the  Steering  Group,  review  of  the  macroeconomic  and  financial  data,  and 
consultations with local economic experts.  

Recruitment of the respondents was carried out with the support of local economic experts 
and  finalised  based  on  the  review  of  the  Steering  Group.  The  eventual  Delphi  panel 
comprised 62 representatives from the following groups/institutions:  

  Financial sector experts, e.g. research departments of commercial banks, the Greek 
stock exchange, private economic consultancies and leading credit rating agencies; 

  Academic community, e.g. senior staff from the economics departments of leading 
Greek  universities  and  selected  researchers  specialising  in  the  Greek  economy/ 
financial sector from leading UK, German and French universities; 

  Researchers from leading European think-tanks with an  extensive track  record  of 

research into the Greek economy/financial sector; 

  Financial press, e.g. journalists from established economic/financial press; 

  Other, e.g. individual experts from national regulators with considerable and past 

experience of the financial sector in Greece.  

The study team made substantial efforts to target those respondents who were likely to 
have  an  extensive  prior  knowledge  of  EAPs  based  on  their  experience  with  the  country 
context and economic and financial situation. To avoid the risk of bias, officials with direct 
and material involvement in the implementation of the programmes  -  whether  from the 
Greek authorities or international creditors - were excluded from the sample. During the 
first round (April 2020), 30 of the 62 potential respondents provided valid feedback, or a 
high 48 per cent response rate.  

The first round of survey results yielded consistent views among respondents, with a high 
degree of consensus on most questions. The second round of the Delphi survey was thus 
deemed unnecessary.   

Table A1.5 presents the respondents by background/type of organisation for both rounds.  

Table A1.5  Details of the Delphi Panel that were invited and responded 

Type of organisation 

Number of invitees 

Number of responses 

Financial sector 

Academia 

Think-tanks 

Financial press 

Other 

Grand total 

32 

18 

6 

4 

2 

62 

18 

8 

2 

0 

2 

30 

Error! Reference source not found. provides a detailed overview of the results of the 
survey. 

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A1.3 

Methodological limitations 

Several limitations variously affected the depth, breadth and consequently the robustness 
and reliability of the analysis undertaken as part of this study. These limitations are listed 
in order of importance.  

  Limitation 1: Methodological choices were significantly constrained by the budget 
available for this study. While methodological choices are typically driven primarily 
by  the  research  objectives,  the  small  budget  considerably  limited  the  scope  of 
primary  data  collection  activities  and  the  amount  of  qualitative  and  quantitative 
analysis that could be undertaken. For example, stakeholder interviews were mostly 
limited to key informants. In an ideal scenario, the study team would have liked to 
interview  the  representatives  of  a  cross-section  of  Greek  banks,  academics  and 
think tanks, as well as larger pool of stakeholders from the European Commission. 
Similarly, the team would have liked to dive deeper into a number of topics including 
bank-level  analysis  related  to  the  loan  origination  policies  prior  to  the  crisis, 
sequencing and specific elements of NPL reforms (e.g. whether creation of an AMC 
would have been an appropriate choice, impact of specific legislative measures on 
NPLs, reforms related to creation of a secondary market for NPLs etc.) and impact 
of  corporate  governance  reforms  on  ‘core  banks’,  as  well  as  the  policy  trade-offs 
related  to  capital  controls,  a  more  detailed  examination  of  risks’  diagnostics 
undertaken by three institutions and the plausibility of an earlier PSI. In addition, a 
cross-country  comparative  perspective  would  have  been  fleshed  out  to  a  greater 
extent. However, such detailed analysis was not feasible.  

  Limitation 2:  It was not possible to consult some core IMF staff initially shortlisted 
for the interviews given the exceptional work pressures stemming from the COVID-
19 crisis. An additional issue was the absence of a specific protocol agreed between 
the  European  Commission  and  the  IMF  that  would  have  guided  the  IMF  staff 
engagement  with  the  study,  including  confidentiality,  timing  of  comments  and 
reviews.  While  the  IMF  staff  provided  timely  written  inputs  directing  the  team  to 
publicly available material (most of which had already been reviewed by the study 
team), ECB officials did not participate in the study at all. The study thus lacks the 
wider input and tacit knowledge of these stakeholders.  

  Limitation 3: Limited access to non-publicly available sources of information meant 
that the study relied heavily on public sources of information. Access to non-public 
information was limited, with some exceptions (e.g. extracts from policy briefs).  

  Limitation  4:  Some  stakeholders  had  some  difficulty  in  recalling  certain  details 
related to the EAPs or their context, given the passage of time since the start of first 
programme. 

The limitations affected the depth of the analysis and as such, it was not possible for the 
study team to draw conclusions on certain aspects of the programme (e.g. sequencing of 
NPL reforms, appropriateness and effectiveness of specific NPL reforms etc.). The section 
on NPLs therefore presents findings based on secondary material and a limited number of 
interviews,  rather  than  conclusions.  Generally,  however,  these  limitations  do  not 
undermine  the  overall  (strong)  robustness  and  reliability  of  the  analysis,  findings  and 
conclusions  from  the  whole  study.  Mitigation  measures  were  undertaken  by  the  study 
team,  including  extensive  cross-verification  of  material  interview  insights  with  other 
primary/  secondary  data,  several  rounds  of  critical  internal  reviews,  and  the  in-depth 
reviews of the various drafts of the report by the European Commission and IMF staff prior 
to its finalisation. 

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Annex 2  List of completed interviews 

No  Name 

Institutions 

IMF (current and former) 

1 

2 

Anonymized  

Anonymized  

European Commission (current and former) 

3 

4 

5 

Anonymized  

Anonymized  

Anonymized  

ESM 

6 

7 

Anonymized  

Anonymized  

National Stakeholders 

Bank of Greece (current and former) 

8 

9 

Anonymized  

Anonymized  

10  Anonymized  

HFSF (current and former) 

11  Anonymized  

12  Anonymized  

13  Anonymized  

June 2020 

Role of interviewee 

Date of the interview 

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

Anonymised  

29th March, 2020 

19th February, 2020 

27th January, 2020 

4th February, 2020 

4th February, 2020 

1st April, 2020 

24th February, 2020 

19th March, 2020 

10th March, 2020 

10th March, 2020 

11th March, 2020 

17th March, 2020 

11th March, 2020 

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Ministry of Finance (current and former) 

14  Anonymized  

Anonymised  

10th March, 2020 

Public Debt Management Agency 

15  Anonymized  

Anonymised  

14th April, 2020 

Hellenic Federation of Enterprises 

16 

Anonymized  

Hellenic Banking Association 

17 

Anonymized  

Hellenic Association of Insurance Companies  

Anonymised  

11th March, 2020 

Anonymised  

12th March, 2020 

18 

Anonymized  

Anonymised  

12th March, 2020 

Moody’s Credit Rating Agency (current and former) 

19 

Anonymized  

Anonymised  

16th April, 2020 

Academia (leading UK university)   

20 

Anonymized  

Anonymised  

8th May, 2020 

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Annex 3  List of reviewed documentation 

A3.1 

List of reviewed documentation for Q1  

1.  Asimakopoulos, I., Avramidis, P.K., Malliaropoulos, D. and N.G. Travlos (2016) 
– “Moral hazard and strategic default: evidence from Greek corporate loans”, 
Bank of Greece Working Paper No 211 

2.  Bain & Co (2013) – “Report to the Bank of Greece. Policies and procedures 
required to ensure effective management and recovery of assets left in 
liquidation following the resolution of Greek credit institutions: Assessment and 
recommendations” 

3.  Bank of Greece (2014a) – “The Chronicle of the Great Crisis: The Bank of 

Greece 2008-2013. Public Interventions and Institutional Actions to Safeguard 
Financial Stability and Overcome the Crisis” 

4.  Bank of Greece (2014b) – “2013 Stress Test of the Greek Banking Sector”, 

March 2014 

5.  Bank of Greece (2012) – “Report on the Recapitalization and Restructuring of 

the Greek Banking Sector”, December 2012 

6.  Bank of Greece (2011a) – “Annual Report 2010”, April 2011 

7.  Bank of Greece (2011b) – “Monetary Policy 2010-2011”, February 2011 

8.  Bank of Greece (2010a) – “Monetary Policy Interim Report 2010”, October 2010 

9.  Bank of Greece (2010b) – “Financial Stability Review”, July 2010 

10. Bank of Greece (2010c) – “Annual Report 2009”, April 2010 

11. Bank of Greece (2010d) – “Monetary Policy 2009-2010”, March 2010 

12. Bank of Greece (2009a) – “Interim Financial Stability Review”, December 2009 

13. Bank of Greece (2009b) – “Monetary Policy Interim Report 2009”, October 2009 

14. Bank of Greece (2009c) – “Financial Stability Review”, June 2009 

15. Bank of Greece (2009d) – “Monetary Policy 2008-2009”, February 2009 

16. BlackRock Solutions (2014) – “Project Aura: Asset Quality Review and Credit 

Loss Projection Methodology”, March 2014 

17. BlackRock Solutions (2012) – “Diagnostic Assessment of Greek Banks. Excerpt 

from Report Submitted on December 30, 2011” 

18. ESM (2020) – Restoring growth and financial stability: how Greek banks 

responded. Available at: https://www.esm.europa.eu/publications/restoring-
growth-and-financial-stability-how-greek-banks-contributed 

19. European Commission (2017) – “Coping with the International Financial Crisis 
at the National level in a European Context. Impact and Financial sector Policy 
Responses in 2008-2015” 

20. European Banking Authority (2011) – “2011 EU-Wide Stress: Test Objectives, 

outcome and recommendations” 

21. European Central Bank (2015) – “Aggregate Report on the Greek 

Comprehensive Assessment 2015” 

22. European Central Bank (2010) – “Financial Stability Review”, June 2010 

23. European Central Bank (2009a) – “Financial Stability Review”, December 2009 

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24. European Central Bank (2009b) – “Financial Stability Review”, June 2009 

25. International Monetary Fund (2010a), “Greece: First Review Under the Stand-

By Arrangement”, Country Report No. 10/286, September 2010 

26. International Monetary Fund (2010b), “Greece: Stand-By Arrangement— 
Review Under the Emergency Financing Mechanism”, Country Report No. 
10/217, July 2010 

27. International Monetary Fund (2010c), “Greece: Staff Report on Request for 

Stand-By Arrangement”, Country Report No. 10/110, May 2010 

28. International Monetary Fund (2010d), “Greece: Second Review Under the 

Stand-By Arrangement—Staff Report; Press Release on the Executive Board 
Discussion; and Statement by the Executive Director for Greece”, Country 
Report No. 10/372, December 2010 

29. International Monetary Fund (2009a), Selected Issues Papers on Greece, 

August 2009 

30. International Monetary Fund (2009b), Article IV Consultation Staff Report for 

Greece, August 2010 

A3.2 

List of reviewed documentation for Q2-Q5  

1.  Allen, P, (2012) – “Huge Sense of Doom Among ‘Grexit’ Predictions”, CNBC 

2.  Allen & Overy LLP (2012) – “How the Greek Debt Reorganisation of 2012 

Changed the Rules of Sovereign Insolvency”, September 2012 

3.  Alpha Bank, 2010/11/12/15. Annual Financial Reports.  

4.  Bank of Greece (2018) – “Overview of the Greek Financial System. Special 

Feature”, November 2018 

5.  Bank of Greece (2014) – “The Chronicles of the Great Crisis. Bank of Greece: 

2008-2013”, Center for Culture Research and Documentation, September 2014 

6.  Bank of Greece (2013) – “Annual Report 2012”, February 2013 

7.  Bank of Greece (2012) – “Report on the Recapitalisation and Restructuring of 

the Greek Banking Sector”, December 2012 

8.  Bank of Greece (2010) – “Annual Report for the Year 2009”, April 2010 

9.  Bank of International Settlements (2018) – “Lessons from the Financial Crisis 

and Challenges for the Greek Banking Sector”, Speech by Mr Yannis 
Stournaras, Governor of the Bank of Greece, at a lecture organized by the 
International Center for Monetary and Banking Studies (ICMB), Geneva, 13 
November 2018 

10. Barber, T. (2009) – “Greece Vows Action to Cut Budget Deficit”. Financial 

Times, October 2009 

11. Battisini, N., Pagano, M. and S. Simonelli (2014) – “Systemic risk, sovereign 

yields and bank exposures in the euro area”, Economic Policy 29(78) 

12. Centre for European Policy Studies (2011) – “An Evaluation of the French 

Proposal for a Restructuring of Greek Debt”, July 2011  

13. Centre for International Governance Innovation (2016) – “How the SYRIZA led 
government privatised Greek banks”, Article by Miranda Xafa, January 2016 

14. Christodoulakis, G. (2015) – “Managing Risks in the European Periphery Debt 

Crisis: Lessons from the Trade-off between Economics, Politics and the Financial 
Markets”, Palgrave, Macmillan 

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15. Committee for the Abolition of Illegitimate Debt (2017) – “Greece: PSI and 

process of bank recapitalisation (2012-2016)”, January 2017 

16. Committee for the Abolition of Illegitimate Debt (2017) – “Greece: PSI and 

process of bank recapitalisation (2012-2016)”, January 2017 

17. Coppola, F. (2015) – “The Way to Fix Greece is to Fix the Banks”, Financial 

Times, 27 July 2015 

18. Council of the European Union (2011) – “Statement by the Heads of State or 

Government of the Euro area and EU Institutions”, 21 July 2011. 

19. DG ECFIN (2019). Enhanced Surveillance Report, Greece, Institutional Paper No 

099, February 2019 

20. DG ECFIN (2018a). Enhanced Surveillance Report, Greece, Institutional Paper 

No 090, November 2018 

21. DG ECFIN (2018b). Compliance report - the third Economic Adjustment 

Programme for Greece - Fourth Review, July 2018 

22. DG ECFIN (2017) – “Compliance Report. The Third Economic Adjustment 

Programme for Greece, Second Review”, June 2017 

23. DG ECFIN (2016) – “Compliance Report. The Third Economic Adjustment 

Programme for Greece. First Review”, June 2016 

24. DG ECFIN (2014) – “The Second Economic Adjustment Programme for Greece. 

Fourth review”, Occasional Papers 192, April 2014 

25. DG ECFIN (2013) – “The Second Economic Adjustment Programme for Greece. 

Second review”, Occasional Papers 148, May 2013 

26. DG ECFIN (2012) – “The Second Economic Adjustment Programme for Greece”, 

Occasional Papers 94, March 2012 

27. DG ECFIN (2011a) – “The Economic Adjustment Programme for Greece. Fourth 

review”, Occasional Papers 82, July 2011 

28. DG ECFIN (2011b) – “The Economic Adjustment Programme for Greece. Fifth 

review”, Occasional Papers 87, October 2011 

29. DG ECFIN (2010) – “The Economic Adjustment Programme for Greece”, 

Occasional Papers 61, May 2010 

30. Economist Intelligence Unit (2015) – “Bank Recapitalisation Gets Under Way”, 

25 November 2015  

31. Eurobank, 2010/11/12/15. Annual Financial Report. 

32. Euromoney (2015) – “Greek banks go for third lucky”, Article by Dominic 

O’Neil, November 2015 

33. European Bank Authority (2018) – “EU-Wide Stress-Tests Results”, November 

2018 

34. European Central Bank (2010) – “Monthly Bulletin-June”, July 2010 

35. European Commission (2019) – “Ex-Post Evaluation of the Economic 

Adjustment Program: Cyprus 2013-2016”, October 2019 

36. European Commission (2017) – “Coping with the International Financial Crisis 

at the National Level in a European Context. Impact and Financial Sector Policy 
Responses in 2008-2015”, Commission Staff Working Document, SWD (2017) 
373 final, November 2017 

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37. European Commission (2015) – “Memorandum of Understanding Between the 
European Commission, Acting on Behalf of the European Stability Mechanism, 
and the Hellenic Republic, and the Bank of Greece”, August 2015 

38. European Court of Auditors (2017) – “The Commission's Intervention in the 

Greek Financial Crisis”, Special Report No 17/2017, November 2017 

39. European Stability Mechanism (2017) – “Evaluation of EFSF/ESM Programmes”, 

June 2017 

40. Financial Times (2014) – “Greece in Banking Stand-off with Bail-out Leaders”, 

24 February 2014 

41. Financial Times (2012) – “PSI Loss”, 13 September, 2012 

42. Gourinchas, P.O., Philippon, T. and D. Vayanos (2017) – “The analytics of the 

Greek crisis”, NBER Macroeconomics Annual, 31 (1). pp. 1-81 

43. Haliassos, M., Hardouvelis, G., Tsoutsoura, M. and D. Vayanos (2017) – 

“Financial Development and the Credit Cycle in Greece”, In “Beyond Austerity – 
Reforming Greece Economy”, ed. Meghir, C., Pissarides, C., Vayanos, D. and N. 
Vettas, pp. 251-305, MIT Press 

44. Hardouvelis G. (2018) – “The Greek Banking Crisis Part 1: The Doom Loop of a 

Sovereign and a Banking Crisis”, The National Herald, 30 March 2018 

45. Hellenic Bank Association (2019) – “Greece Banking Sector: Facts and Figures”, 

September 2019 

46. Hellenic Financial Stability Fund (2017) – “Review and Evaluation of the 

Governance Framework and Performance of the Board of Directors of the Greek 
Systemic Banks”, Press Release, September 2017 

47. Hellenic Financial Stability Fund (2016) – “HFSF has selected Spencer Stuart to 

undertake the review of the Boards’ and Committees’ of the Systemic Banks”, 
Press Release, April 2016 

48. Hellenic Financial Stability Fund (2013) – “Report of the Hellenic Financial 

Stability Fund for the period January-June 2013”, June 2013 

49. Hellenic Financial Stability Fund (2012) - “Annual Report for the financial year 

from 21/07/2010 to 31/12/2011, May 2012 

50. International Monetary Fund (2019a) – “Greece: Selected Issues”, Country 

Report No. 19/341”, November 2019 

51. International Monetary Fund (2019b) – “Greece: 2019 Article IV Consultation-
Press Release; Staff Report; and Statement by the Executive Director for 
Greece”, Country Report No. 19/340”, November 2019 

52. International Monetary Fund (2019c) – “Greece: First Post-Program Monitoring 

Discussions-Press Release; Staff Report; and Statement by the Executive 
Director for Greece”. Country Report No. 19/73, March 2019 

53. IMF (2018) – “Greece: 2018 Article IV Consultation and Proposal for Post-
Program Monitoring-Press Release; Staff Report; and Statement by the 
Executive Director for Greece”, Country Report No. 18/28, July 2018 

54. International Monetary Fund (2017a) – “Greece: Ex-Post Evaluation of 

Exceptional Access Under the 2012 Extended Arrangement. Press Release; Staff 
Report; and Statement by the Executive Director for Greece”, Country Report 
No. 17/44, February 2017 

55. International Monetary Fund (2017b) – “2016 Article IV Consultation-Press 

Release; Staff Report; And Statement by the Executive Director for Greece”, 
Country Report No. 17/44, February 2017 

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56. International Monetary Fund (2015) – “Greece: Past Critique and the Path 

Forward”, Article by O. Blanchard, 9 July 2015 

57. International Monetary Fund (2013a) – “Greece: Fourth Review Under the 
Extended Arrangement Under the Extended Fund Facility, and Request for 
Waivers of Applicability and Modification of Performance Criterion. Staff Report; 
Staff Statement; Press Release; and Statement by the Executive Director for 
Greece”, Country Report No. 13/241, July 2013 

58. International Monetary Fund (2013b) – “Ex-Post Evaluation of Exceptional 

Access Under the 2010 Stand-By Arrangement”, Country Report No. 13/156, 
June 2013 

59. International Monetary Fund (2012) – “Request for the extended arrangement 

under Extended Fund Facility. Staff Report; Staff Supplement; Press Release on 
the Executive Board Discussion; and Statement by the Executive Director for 
Greece”, Country Report No. 12/57, March 2012 

60. International Monetary Fund (2010) – “Greece: Request for Stand-By 

Arrangement”, Country Report No. 10/111, May 2010 

61. Law No.4346/2015, Government Gazette 152 A’, 20/11/2015 

62. Law No.4340/2015, Government Gazette 134 A’, 01/11/2015 

63. Law No.4254/2014, Government Gazette 85 A’, 07/04/2014 

64. Law No.4152/2013, Government Gazette 107 A’, 09/05/2013 

65. Law No.4051/2012, Government Gazette 40 A’, 29/02/2012 

66. Law No.4021/2011, Government Gazette 218 A’, 03/10/2011 

67.   Law No.3864/2010, Government Gazette 119 A’, 21/07/2010 

68. Ministerial Council Act 15, Government Gazette 117 A’, 04/05/2012 

69. MIT, 2016. Beyond Austerity – Reforming Greece Economy 

70. Moody’s (2011) – “Moody’s Downgrades the Ratings of Greek banks”, 

Concluding review initiated 25 June 2011, 23 September 2011 

71. Moody’s (2012a) – “Larger Haircut on Greek Government Bonds is Credit 

Negative for Greek Banks”, 27 February 2012 

72. Moody’s (2012b) – “Deposit Declines and ECB’s Suspension of Greek Bonds as 

Collateral Increase Funding Risks for Greek Banks”, 5 March 2012 

73. Moody’s (2012c) – “HFSF’s Capital Commitment to Greek Banks is Credit 

Positive”, 23 April 2012 

74. Moody’s (2011) – “Moody’s Downgrades Ratings of Greek Banks and Concludes 

Review”, 3 June 2011 

75. Monokroussos, P. and C. Gortsos (2017) – “Non-Performing Loans and 

Resolving Private Sector Insolvency: Experiences from the EU Periphery and the 
Case of Greece”, Palgrave Macmillan Studies in Banking and Financial 
Institutions 

76. National Bank of Greece, 2010/15/17. Annual Financial Reports.  

77. Peterson Institute for International Economic (2011) – “What’s behind the 
squabble over a new aid package for Greece?”, Article by Jacob Funk 
Kirkegaard, 10 June 2011 

78. Piraeus Bank, 2010/11/14/15/17. Annual Financial Reports.  

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79. Reuters (2012) – “Credit Agricole Takes 2 billion euro Hit from Emporiki Sale”, 

17 October 2012  

80. Siokis, F. (2014) – “The Sword of Damocles (Part II): The Precariousness of the 

Greek Banking System During the Great Sovereign Debt Crisis”, article by 
Fotios Siokis, 4 March 2019 

81. Trebesch, C. and J. Zettelmeyer (2018) – “ECB Interventions in Distressed 

Sovereign Debt Market: The Case of Greek Bonds”, IMF Economic Review, 66 
(2), pp. 287-332 

82. World Bank (2017) – “Bank Resolution and Bail-in in the EU: Selected Case 
Studies pre and post BRRD”, Report No. 112265, Volume 1, April 2017 

83. Zettelmeyer, J., Trebesch, C. and M. Gulati (2013) – “The Greek Debt 

Exchange: An Autopsy”, Presentation in Economic Policy Fifty-seventh Panel 
Meeting Hosted by Trinity College Dublin and supported by the Central Bank of 
Ireland Dublin, 19-20 April 2013 

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Annex 4  Summary of desk review on diagnostic work conducted 

by the BoG, EC, ECB and the IMF  

Summary of reports concerning developments in the financial sector in 
Greece over the period 2009 – 2010 

European Commission publications 

The study team reviewed the following publicly available European Commission Reports 
covering the period prior to and the early stages of the Greek crisis: 

  Quarterly Report on the Euro-area (QREA) for the period March 2009-June 2010; 

  Economic Economic Forecasts (EEF) for the period Spring 2009 to Autumn 2010. 

The QREAs provide an aggregate analysis of economic developments in the Euro-area 
during a given quarter, without going too much into country specific details. As such, 
developments in the  Greek banking/financial sector were not specifically discussed in 
the  above  QREAs;  although,  issues  affecting  the  Greek  banking  sector  were  briefly 
mentioned  in  the  context  of  the  broader  euro-area  analysis.  For  example,  the  March 
2009 QREA makes a reference to loose credit policies fuelling the rapid rise in property 
prices  observed  in  Spain,  Portugal  and  Greece  in  the  context  of  a  discussion  on  the 
build-up of current account imbalances within the euro-area. Similarly, the June 2009 
QREA highlights the notable decline in lending in Greece between Oct 2008 - April 2009 
when describing the banking sector developments in the euro-area following substantial 
banking support measures implemented by several Member States.  In the context  of 
this discussion, the Report highlights banking sector vulnerabilities at euro-area level, 
including the risk of negative feedback loop from the real economy to the banking sector 
(the  functioning  of  interbank  markets  having  not  fully  returned  to  normal  levels,  
continuing fragility of bank balance sheets and uncertainty about the capacity of many 
banks to absorb losses linked to assets that may become impaired as the effects of the 
economic down-cycle feed through). The December 2009 QREA included a special, more 
detailed section euro- area banking sector developments, but it also did not dwell on 
country specific issues. The QREAs produced in 2010 do not make a specific mention of 
Greek banking sector issues even in the context of the broader euro-area analysis. 

The Autumn 2009 EEF notes that the direct impact of the financial crisis on the Greek 
banking sector had been relatively contained, due to its limited exposure to high risk 
financial 
investments.  The  Report  also  suggests  that  the  Commission  was 
underestimating the situation in Greece. There was some expectation at the time that 
a gradual improvement in liquidity and capitalisation of Greek banks might contribute 
to a modest credit expansion in 2010, which of course did not prove to be the case.  

The Spring 2010 forecast makes a reference to large increase in lending to households 
prior  to  the  crisis  as  a  source  of  vulnerability  in  Greece  and  some  other  euro-area 
countries. Banking sector liquidity issues are specifically highlighted and discussed as a 
risk factor for Greece (the downside risk to economic activity via bank-lending channel). 

The Autumn 2010 forecast discusses the deceleration in credit expansion as a result of 
tight credit conditions and high household indebtedness, but provides a rather optimistic 
outlook  for  future  anticipating  that  an  improvement  in  liquidity  and  capitalisation  of 
Greek banks could potentially help sustain a modest expansion in credit expansion which 
in turn could private consumption and foster investment. 

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Bank of Greece publications 

Most  of  the  Bank  of  Greece  reports  (henceforth  BoG)  prior  to  and  during  the  initial 
period237 of the first Economic Adjustment Program (henceforth EAP) were published in 
the  context  of  its  regular  publications’  series.  These  comprise  the  Annual  Report 
(Governor’s report), the Monetary Policy Interim Report and the Monetary Policy Report. 
In the aftermath of the 2008  – 2009 global financial crisis, the BoG issued in 2009 a 
new publication series, the Financial Stability Review. It was published twice a year, in 
June (main report) and in December (Interim Report). Yet, it was discontinued after the 
2010 main report and the next report was published only in December 2019. 

In  the  regular  BoG  reports concerning  the  period  under  review,  the  analysis 
focused  especially  on  the  increasing  ratio  of  non-performing  loans  (NPLs), 
which was considered a significant factor for banks’ increasing credit risk (see 
e.g. BoG 2009d, 2010d). Indicatively, the NPLs ratio to total loans increased from 5% 
in December 2008 to 7.2% in September 2009 (BoG 2010d). It rose further, to 10% in 
September  2010,  from  7.7%  in  December  2009  (BoG  2011a).  The  observed 
deterioration in loan servicing was mainly attributed to the rapidly worsening financial 
situation of the Greek economy. Strong concerns about the increasing rate of NPLs were 
expressed in BoG (2011a) and BoG (2011b). In BoG (2011b), it was explicitly stated for 
the  first  time  that  their  ratio  is  expected  to  continue  increasing  in  the  next  years. 
However,  these  two  reports  do  not  include  a  detailed  presentation  of  NPLs 
portfolios (e.g. with respect to categories of borrowers, borrowing purpose), 
nor proceed to any technical analysis of the associated credit risk. 

The  deteriorating  banking  system  liquidity  is  also  considered  in  some  of  the 
BoG  regular  reports.  This  adverse  development  was  analyzed  in  some  reports 
published relatively by the end of period 2009 - 2010 (e.g. BoG 2010a, 2011a, 2011b). 
But earlier, in BoG (2009b) this factor is relatively downplayed, as the measures taken 
by the Greek government in December 2008 to support liquidity after the global financial 
crisis  and improved  conditions  at  that  time in  the  global  financial  markets  had  eased 
liquidity  pressures.  However,  in  later  reports  it  was  referred  that  liquidity  constraints 
heightened.  The  primary  cause  for  this  development  was  considered  to  be  the 
deteriorating  fiscal  situation  and  the  associated  country  risk  (BoG  2010a,  2011a, 
2011b). These developments are depicted at the successive downgrading of the Greek 
sovereign  credit  rating,  which  in  turn  negatively  affected  Greek  banks’  credit  ratings 
(BoG 2011a, 2011b), thereby a sovereign crisis-banking sector developments feedback 
loop  was  evident.  As  the  Greek  banks'  credit  ratings  worsened,  the  value  of  their 
collaterals to the Eurosystem also declined, which was another compounding factor to 
their liquidity constraint (BoG 2011a). Hence, Greek banks got increasingly reliant on 
the Eurosystem and 2008 Greek government measures for liquidity (BoG 2011a, BoG 
2011b).  That  said,  it  is  acknowledged  in  these  two  reports  that  this  can  only  be  a 
temporary solution to the tightening credit conditions. 

Regarding  other  risks  potentially  affecting  the  financial  sector  during  2009-
2010,  no  references  were  found  in  any  of  the  regular  BoG  reports  including 
indications of loose credit supply prior to the crisis and issues related to the 
corporate governance of Greek banks.  

Regarding the contents of the BoG Financial Stability Review (henceforth FSR) reports 
during 2009 - 2010, which focused on the trends of factors affecting the robustness of 
the banking system, the first two reports (BoG 2009a, 2009c) do not include an explicit 
warning  about  a  sovereign  debt  servicing  conditions  –  banking  sector  developments 
feedback  loop.  However,  BoG  (2010b)  emphasized  the  fact  that  international  money 
and  capital  markets  became  inaccessible  from  end-December  2009  due  to  increasing 

237 Cut off line we used was April 2011, as then Bank of Greece (2011a) was published, 
which was the first BoG report with data about key vulnerability and shock-absorption 
capacity indicators for the banking system fully covering 2010. 

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concerns  about  Greece  fiscal  prospects,  a  practical  evidence  that  a  sovereign  crisis  – 
banking sector developments nexus was a material issue. As a result, Greek banks relied 
exclusively  on  the  Eurosystem  for  the  necessary  liquidity.  In  addition,  all  BoG  FSR 
reports refer to the negative effects of adverse macroeconomic and financial conditions 
of the Greek economy and on the worsening financial condition of firms and households. 
Despite  these  developments,  the  key  aggregates  of  the  Greek  banks  remained 
fundamentally sound and were not considered to pose risks to financial stability. Finally, 
in all reports it was expected that domestic economic activity will decline. 

With respect to NPLs, in all BoG FSR  reports an increase in the ratio of  NPLs to total 
loans is recorded, starting from 4.5% in 2007 and reaching 8.2% in March 2010. This 
upward  trend  is  observed  in  all  loan  categories.  As  a  result,  accumulated  bad  loan 
provisions reached EUR 9.0 billion in 2009 from EUR 6.6 billion in 2008. Despite higher 
provisions, the ratio of accumulated provisions to NPLs declined from 53.4% in 2007 to 
41.5% to 2009 and the BoG stresses that banks should increase bad loan provisioning. 
In  order  to  address  increasing  NPLs,  BoG  (2009a,  2010b)  reports  that  several  banks 
proceeded  to  more  private  debt  restructuring,  with  the  respective  amount  increasing 
from EUR 0.9 billion in 2008 to EUR 3.4 billion in end-2009. 

As far as trends in credit supply are concerned, BoG (2009c, 2010b) reports a significant 
decline  in  credit  supply  to  firms  (from  23.6%  in  4Q/2008  to  2.9%  in  05/2010)  and 
households (from 12.8% in 12/2008 to 2.0% in 05/2010) due to tightened credit criteria 
applied by banks, reluctance of firms and households to take on new investments and 
worsening of households’ and firms’ expectations for their financial position. 

With respect to issues around the governance of banks, BoG (2009c, 2010b) stressed 
that banks should: (i) pursue prudent profit distribution and bonus policies, (ii) diversify 
their funding sources and reduce their reliance on the Eurosystem, (iii) strengthen the 
role  of  risk  management  units  and  upgrade  their  risk  measurement  and  monitoring 
systems, (iv) consider initiatives in the direction of strategic alliances and/or mergers 
which will help them to better manage the deleveraging process, (v) maintain capital 
buffers well above the minimum in order to deal with the consequences of the economic 
downturn in Greece and in the countries where they have presence. 

With respect to the existence of other risks for the financial sector, all FSR reports put 
emphasis  on:  (i)  the  pessimistic  prospects  for  household  income  and  wealth,  (ii)  the 
decline in house price index (from +12.2% in 2006 to -5.3% in 3Q/2009), although BoG 
(2010b) considered that a risk of an abrupt correction seemed limited, (iii) the risk from 
the  activity  of  Greek  banks  in  Emerging  Europe  countries,  (iv)  the  successive 
downgrades of the credit rating of the Greek government which triggered downgrades 
of Greek banks and (v) the outflows of deposits, in particular in the first months of 2010.  

Conclusion 

In the BoG regular reports published since early during the period of  interest 2009 – 
2010, emphasis is given to the escalating ratio of non-performing loans (NPLs), which 
was considered a  significant factor  for banks’ increasing credit risk. The deteriorating 
banking system liquidity, as well as its causes and implications were considered in some 
of the BoG regular reports published relatively by the end of period 2009 – 2010. 

Among the causes of the deteriorating liquidity in 2010 feature the deteriorating fiscal 
situation  and  associated  country  risk,  which  negatively  affected  Greek  banks’  credit 
ratings. Thus, a sovereign crisis-banking sector nexus was detected in regular late-2010 
BoG reports, but not earlier. 

No references to other risks potentially affecting the financial sector during 2009-2010, 
such as loose credit supply and issues related to the corporate governance, were found 
in any of the regular BoG reports. 

BoG  FSR  reports  referred  to  many  of  the  risks  that  might  affect  the  Greek  banking 
system.  However,  there  was  no  classification  of  risks  based  on  their  significance  or 

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projections  of  their  prospect  evolution,  e.g.  in  the  short-term,  medium-term  horizon. 
Generally,  the  FSR  BoG  reports  that  were  provided  during  the  period  2009  –  2010 
offered a much more comprehensive analysis of the risks for the Greek banking system 
than the regular BoG reports. 

Finally, it is noted that subsequent BoG reports already reviewed, such as the report on 
the recapitalization and restructuring of the Greek banking sector (BoG 2012) and the 
report on the 2013 stress test of the Greek banking sector (BoG 2014) do not refer to 
vulnerabilities/risks in the Greek banking system prior to the first EAP. The same holds 
for the Bain&Co report to the BoG (Bain&Co 2013), as well as for the BlackRock Solutions 
reports  assessing  the  quality  of  loan  portfolios  of  Greek  banks  (BlackRock  Solutions 
2011, 2014). 

ECB publications 

In the context of ECB’s Financial Stability Reviews prior and at the early stages 
of the first EAP, it is noteworthy that neither of the two semi-annual reports 
during  2009  (ECB  2009a,  2009b)  made  any  specific  references  to  Greece 
specific  financial  sector  risks.  ECB  (2009b)  included  a  reference  to  the  increased 
correlation between banks CDS and sovereign CDS, while attributing it to State support 
schemes  towards  the  banking  sector.  Among  other  Euro  Area  wide  risks,  the  report 
highlights the negative feedback loop between the financial sector and the weakening 
real sector, volatile real estate prices and rising corporate sector credit risk. ECB (2010) 
referred in turn to Greece-specific risks, mainly by describing the onset of the 
Greek sovereign crisis, noting inter alia that “the main trigger for the market’s 
reappraisal  of  sovereign  risk  appeared  to  be  the  fiscal  woes  of  Greece  and 
fiscal 
uncertainty  surrounding  the  prospect  of  agreeing  a  credible 
consolidation plan”. 

EBA publications 

Explicit  references to the EU  (including  Greek) banks’ exposure to sovereign 
risk  were  included  in  the  publication  of  the  EU  wide  stress  test  in  July  2011 
(EBA, 2011). In particular, the report noted that as of end-2010, around EUR 98 billion 
of GGBs and EUR of 17 billion of Greek interbank lending was held by EU banks, of which 
67% and 69% respectively by Greek banks. Aside from the negative impact for banks 
from  their  direct  exposure  to  sovereign  securities,  the  report  makes  reference  to 
potential  second-order  effects,  stemming  from  the  negative  market  sentiment  on 
stressed  sovereigns,  affecting  banks  through  various  channels  such  as:  (i)  market 
funding costs and availability, (ii) share price and capital generation capacity, and (ii) 
business and counterparty profile. But as the report was published in July 2011, these 
analyses cannot be considered as an "early warning" of the sovereign crisis – banking 
sector nexus. 

IMF publications 

The IMF’s country reports for Greece during 2009-2010 (IMF, 2009a; IMF, 2009b; IMF, 
2010a; IMF, 2010b; IMF, 2010c; IMF, 2010d) described the financial sector’s liquidity 
problems  and  solvency  risks,  stemming  from  the  global  financial  crisis  as  well  as  the 
onset of the sovereign crisis, noted the risks of higher NPLs, cross-border exposures, 
and confidence erosion. 

Overall, during 2009-2010, the IMF highlighted a set of risks in relation to the financial 
sector arguing for respective policy and regulatory interventions in the following areas:  

Liquidity  risk;  the  reports  refer  to  the  reasons  of  tight  liquidity  conditions  of  Greek 
banks  and  stress  that  they  require  continued  vigilance  (IMF,  2010b).  The  most 
important of them is the loss of market access as a result of market concerns about the 
sovereign debt (IMF, 2010c) and the resulted downgrade (IMF, 2010b). Other reasons 
include the high-cost of renewing of maturing interbank liabilities (IMF, 2010c), the  – 
moderate at that point of time – deposit outflows (IMF, 2010c; IMF, 2010a; IMF, 2010d) 

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and the fall in prices of pledged collateral (IMF, 2010c). As a result, the Greek banks 
were overly depended on the short-term ECB financing (IMF, 2010c; IMF, 2010d). The 
reports  refer  to  the  actions  taken  in  order  to  address  the  issue  of  tight  liquidity 
conditions.  These  actions  include  the  announcement  by  the  ECB  on  May  2010  that 
market  debt  instruments  issued  or  guaranteed  by  the  Greek  government  will  remain 
eligible as collateral, independent of rating agencies grading (IMF, 2010c), the release 
in late November of the previously-approved €25 billion of government guarantees for 
bank  bonds  (IMF,  2010d),  the  establishment  of  the  Hellenic  Financial  Stability  Fund 
(IMF, 2010c) and the support by the ECB’s SMP Program (IMF, 2010a). The staff of IMF 
believes that banks will have sufficient liquidity for some months on the assumptions 
that SMP program remains in place and that the €25 billion will significantly increase 
repo-eligible collateral. Staff also considers that purchases of government bonds by the 
ECB is an important channel that will ease banks’ liquidity (IMF, 2010e).  

Despite  the  above,  there  is  no  comprehensive  analysis  or  detailed  diagnostics  of  the 
sovereign  banking  sector  nexus.  Instead,  it  highlighted  the  risks  due  to  a  macro-
feedback loop similarly to what regulators did for many other European countries with 
smaller  vulnerabilities  than  Greece.  Specifically,  IMF  (2010c)  warned  that  “the  dual 
challenge of achieving an internal devaluation and strong fiscal adjustment, amid a very 
difficult  funding  environment,  is  bound  to  weigh  heavily  on  growth  for  a  prolonged 
period.  To  avoid  feedback  loops,  the  soundness  of  the  banking  system  needs  to  be 
safeguarded with proactive actions to stem potential liquidity pressures and preserve 
adequate capitalization.” 

  Solvency risk; while banks exhibited comfortably high capital adequacy metrics, 
and the financial system was perceived as resilient to the global slowdown, the 
Fund recommended the authorities to closely monitor banks, be prepared to act 
if needed (IMF, 2009b), while it expected a significant impact on profitability and 
banks’  balance  sheets  -  hence  the  need  to  expand  the  tools  for  dealing  with 
solvency  pressures  by  establishing  a  Financial  Stability  Fund  (IMD,  2010c).  In 
this respect, the reports refer that additional safety would be provided with the 
creation  of  the  Hellenic  Financial  Stability  Fund  (IMF,  2010c),  mention  the 
milestones of its creation (IMF, 2010b; IMF, 2010a; IMF, 2010d) and present it 
function and structure (IMF, 2010c; IMF, 2010b). Also, they report the need to 
increase  the  resources  dedicated  to  banking  supervision  (IMF,  2010c),  the 
recruiting procedure for this reason (IMF 2010a). Furthermore, the reports briefly 
present banks’ financial results (IMF, 2010d) and stress the decision of the Greek 
authorities to perform a due diligence analysis for the banks in which the state 
has a significant state (IMF, 2010a). 

  Credit risk; the risk of a rise in Non-Performing Loans (NPLs) was highlighted 
prior to the sovereign debt crisis (IMF, 2009b). The Fund noted inter alia, that 
“NPLs have been persistently high even during the upswing, while exposures to 
cyclically  sensitive  sectors—shipping,  tourism,  and  construction—are  large  for 
some banks. Credit quality could therefore worsen in the downturn.” The NPLs 
risk was also mentioned in each  of the subsequent reports published in 2010 ( 
most of them report the NPL ratio), without nonetheless elevating it to the top 
priority  issues,  because  banks’  capital  adequacy  ratio  remains  well  above  the 
regulatory minimum (IMF, 2010b) 

  Cross border risk; IMF (2009b) warned about risks from foreign subsidiaries, 
noting  that  “credit  expansion  abroad  more  should  be  in  line  with  local  deposit 
growth  and  funding”,  since  total  exposure  in  Emerging  Europe  238in  2008  that 
stood at €53 billion (203 percent of equity) was assessed as large. Also, the IMF 
reports  that  a  number  of  MoUs  have  been  signed  with  host  supervisory 

238  Emerging  Europe  includes  Albania,  Bulgaria,  Croatia,  North  Macedonia,  Romania, 
Serbia, Turkey, Poland and Ukraine 

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authorities,  in  order  to  clarify  and  strengthen  supervisory  arrangements  in 
countries where Greek banks have a significant presence, especially in Southern 
Eastern Europe (IMF, 2010c) 

  Confidence  erosion;  IMF  (2010a)  made  reference  to  observed  deposits 
outflows,  as  a  preliminary  sign  of  weakening  confidence  vis-à-vis  the  financial 
system,  albeit  still  under  the  control  by  the  banks.  Furthermore,  the  Fund 
mentions that the slippage of confidence in the sovereign was spilled over into 
the banking system (IMF, 2010c)  

  Market  risk;  IMF  (2009b)  notes  that  “although  trading  books  are  relatively 
small,  high  volatility  on  equity,  bond,  and  foreign  exchange  markets  could 
generate losses.”  

  Governance  issues;  Only  IMF  (2010a)  refers  to  the  need  for  reforms  within 
state-controlled  banks.    Also,  as  mentioned  above,  the  IMF  reports  stress  the 
need to increase the resources dedicated to banking supervision (IMF 2010c) and 
the decision of the Greek authorities to perform a due diligence analysis for the 
banks in which the state has a significant state (IMF, 2010a) 

  Data access; IMF (2010b) made particular reference to difficulties in relation to 
accessing data which could be relevant to the PSI, by noting that “Private-sector 
exposure  to  Greece  is  difficult  to  gauge  because  of  confidentiality  provisions, 
which is complicating engagement of PSI. Foreign regulators are prevented from 
sharing available data on bank exposures to Greece with the ECB and the Fund 
because  of  confidentiality  restrictions.  Preliminary  statistics  (from  the  BIS  and 
other  sources)  indicate  that  Greek  banks’  liability  to  non-resident  financial 
institutions have remained broadly stable, but no precise data are available.” 

References:  

Bain & Co (2013) – “Report to the Bank of Greece │ Assessment and recommendations”  

Bank of Greece (2014) – “2013 Stress Test of the Greek Banking Sector” 

Bank of Greece (2012) – “Report on the Recapitalization and Restructuring of the Greek 
Banking Sector” 

Bank of Greece (2011a) – “Annual Report 2010”, April 2011 

Bank of Greece (2011b) – “Monetary Policy 2010-2011”, February 2011 

Bank of Greece (2010a) – “Monetary Policy Interim Report 2010”, October 2010 

Bank of Greece (2010b) – “Financial Stability Review”, July 2010 

Bank of Greece (2010c) – “Annual Report 2009”, April 2010 

Bank of Greece (2010d) – “Monetary Policy 2009-2010”, March 2010 

Bank of Greece (2009a) – “Interim Financial Stability Review”, December 2009 

Bank of Greece (2009b) – “Monetary Policy Interim Report 2009”, October 2009 

Bank of Greece (2009c) – “Financial Stability Review”, June 2009 

Bank of Greece (2009d) – “Monetary Policy 2008-2009”, February 2009 

BlackRock  Solutions  (2014)  –  “Project  Aura:  Asset  Quality  Review  and  Credit  Loss 
Projection Methodology” 

BlackRock  Solutions  (2012)  –  “Diagnostic  Assessment  of  Greek  Banks.  Excerpt  from 
Report Submitted on December 30, 2011” 

European Commission, Quarterly Report on the Euro-area (QREA) for the period March 
2009-June 2010 

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programmes: 2010-2018 

European Commission, Economic Economic Forecasts (EEF) for the period Spring 2009 
to Autumn 2010 

European Banking Authority (2011) – “2011 EU-Wide Stress: Test Objectives, outcome 
and recommendations” 

European Central Bank (2010) - “Financial Stability Review”, June 2010 

European Central Bank (2009a) - “Financial Stability Review”, December 2009 

European Central Bank (2009b) - “Financial Stability Review”, June 2009 

International  Monetary  Fund  (2010a),  “Greece:  First  Review  Under  the  Stand-By 
Arrangement”, Country Report No. 10/286, September 2010 

International Monetary Fund (2010b), “Greece: Stand-By Arrangement— Review Under 
the Emergency Financing Mechanism”, Country Report No. 10/217, July 2010 

International Monetary  Fund (2010c), “Greece: Staff Report on Request for Stand-By 
Arrangement”, Country Report No. 10/110, May 2010  

International  Monetary  Fund  (2010d),  “Greece:  Second  Review  Under  the  Stand-By 
Arrangement—Staff  Report;  Press  Release  on  the  Executive  Board  Discussion;  and 
Statement by the Executive Director for Greece”, Country Report No. 10/372, December 
2010 International Monetary Fund (2009a), Selected Issues Papers on Greece, August 
2009 

International Monetary Fund (2009b), Article IV Consultation Staff Report for Greece, 
August 2009 

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