FT Alphaville " Cypriot banks and some sneaky ELA FT Alphaville has been very curious about the €18bn of mystery Emergency Liquidity Assistance which showed up in the ECB's financial report at the end of April, but until now we weren't sure where the cash had ended up. We had a few guesses of course, but no proof. ELA is essentially a bank bailout by national authorities when things get really, really bad and it is typically lending (or a repo) against collateral the ECB itself won't accept. It is taken at a national eurozone central bank's own risk (but only with ECB board approval) and is best know for its ability to keep broken banks in Ireland and Greece on their feet - so the next most crocked banking system was always a good bet. We finally have some solid evidence to back up our guess work. The central bank of Cyprus" latest balance sheet release includes €3.8bn marked as "other claims on euro area credit institutions denominated in euro" (a big h/t to Stanislas Jourdan at Boiling Frogs). As we have noted before, "other claims on euro area credit institutions denominated in euro" is code for ELA. And it is no real shock that Cypriot banks are suckling away at the ELA teat. They are in real trouble, with the overall size of Cypriot bank assets equal to 835 per cent of GDP. However, the over-riding concern, says Exotix's Gabriel Sterne, are the Cypriot banks" operations in Greece, which are equal to 130 per cent of Cypriot GDP, and not doing particularly well. We imagine the fight over who picks up the tab for any losses on Cypriot banks operating in Greece will be short and pleasant. Sterne estimates that if non-performing loans equal 30 per cent of total assets, and 50 per cent of NPLs go south, then the losses would be equal to 30 per cent of GDP... which is alot. Unsurprisingly, the Cypriot government is inches away from having to nationalise the country's second largest bank with a bailout that could come in at near 10 per cent of GDP. Finally, we should note that if we were betting men (and we are) we would place the rest of the missing ELA money squarely at the Bank of Greece's feet. Sadly, we will have to wait a little while before collecting our winnings. By David Keohane and Joseph Cotterill Related links: Emergency Liquidity Assistance file - FT Alphaville When PSI is futile (but then again, Cyprus) - FT Alphaville Finally, a truly Popular bailout! - FT Alphaville This entry was posted by FT Alphaville on Friday, May 11th, 2012 at 15:50 and is filed under Capital markets. Tagged with Bailout, Cyprus, ecb, emergency liquidity assistance, Greek banks.