News that Greece’s largest banks have asked for access to €17bn in funding from a government support fund sent their shares reeling today. The lingering unease over the Greek state’s fiscal situation also flared up, with bond spreads soaring to record highs.

Greek banks are leaking deposits, an unwelcome development when the cost of replacement funds is rising. Markets also continue to worry about the banks’ reliance on the European Central Bank’s special liquidity scheme. Although the ECB announced today that it would continue to accept investment-grade government debt as collateral—some feared an increase in the “haircut” on lower-rated government bonds—it is clear that, eventually, banks will need to wean themselves off of this support or face sharply higher funding costs. Government support funds and continued access to the ECB’s liquidity window will prop up Greek banks for now, but if deposits continue to fall more drastic action may be needed.

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