Greece’s headache: How to lift the capital controls?

Updated 26 July 2015

Greece’s headache: How to lift the capital controls?

ATHENS: It is just the headache Greece’s government does not need right now: How can it loosen the capital controls that are shielding its banks, but strangling the rest of the economy?
For the past month, Greece has been financially cut off from the rest of the world. It is almost impossible for most Greeks to take money out of the country, thanks to a raft of capital control measures put in place on June 29 amid fears of a catastrophic bank run.
For companies, the capital controls have meant waiting for a government commission to sign off on large bills owed to foreign firms — a process that has slowed payments so much that distrustful suppliers started asking to be paid in advance.
Bank of Greece chief Yannis Stournaras on Friday loosened the restrictions to allow banks to greenlight companies’ foreign payments up to 100,000 euros ($110,000).
But people remain unable to open new foreign bank accounts, buy shares, or transfer large sums of money. Athens is tolerating two main exceptions to the rules: Greek students abroad can receive 5,000 euros per quarter, while citizens having medical treatment in other countries can receive up to 2,000 euros.
Cash withdrawals were limited to 60 euros ($65) per day after Greeks emptied ATMs, worried for the safety of their savings.
Greek Economy Minister Giorgos Stathakis warned on July 12 that it could be “several months” before it is deemed safe to lift the measures completely.
Announced in the throes of the crisis, when Greece appeared to be teetering on the brink of a chaotic eurozone exit, the capital controls were brought in with just one immediate concern in mind: protect the banks.
Some 40 billion euros have left the banks’ coffers since December. As the world waits to see whether Greece and its creditors can hammer out a bailout worth up to 86 billion euros ($96 billion), staving off a panicked outpouring of the country’s cash remains a paramount concern.
According to Diego Iscaro, an economist at consultancy IHS, the problem with capital controls is that they are “easy to implement but very difficult to lift.”
Or as Moody’s analyst Dietmar Hornung put it: “Confidence (in the banks) is lost quickly, but it takes time to restore it.”
Elsewhere in Europe, Iceland is a perfect example of this: the country is only now beginning to lift capital controls that have been in place since 2008.
Cyprus, too, has only just lifted the restrictions introduced in 2013 when, nearly bankrupt, it was forced to impose a so-called “bail-in,” which saw people with large bank deposits lose a hefty chunk of their savings.
“Even Cyprus — with a government resolutely engaged in the reforms, a process which has gone well — took two years to come out of them,” said Frederik Ducrozet, an economist at Credit Agricole.
In Greece’s case, the negotiations have been fraught to say the least, and several of its eurozone partners (and creditors) have openly cast doubt on the government’s ability to stick to its promises.
Many Greeks fear that they too will be forced to endure a bail-in — but analysts say such a move would be much more painful in Greece.
Cyprus’ bail-in was “easier politically” because it largely affected foreigners who had parked large sums in the tax haven, according to Ducrozet.
“The situation in Greece is very different,” the economist Frances Coppola wrote on her blog. “Most large depositors have removed their money already. The remaining uninsured deposits — about 30 percent of the deposit base — are mainly the working capital of Greek businesses.”
She added: “Bailing these in would be far more destructive for the Greek economy than the bail-in of large depositors was for Cyprus.”
The Greek economy is already forecast to contract by three percent this year by the Standard and Poor’s rating agency, but extended capital controls and a big bail-in could constrict activity even further.
In any case, Greece’s badly-weakened banks must be shored up before the capital controls can be lifted.
That will mean waiting for the European Central Bank to carry out stress tests and then for them to be recapitalized through the new aid plan, which has yet to be finalized.
The initial agreement reached between Greece and its creditors floats a 25 billion euro top-up for the banks. Ducrozet predicted a figure of “between 10 and 20 billion (euros), with a ‘bail-in’.”
Once the recapitalization is complete — or even before, if the ECB is satisfied with the progress of the talks — Athens will be able to raise the limits on cash withdrawals, and re-authorize more transfers to banks abroad.

HSBC, StanChart shares fall to 22-year lows

Updated 22 September 2020

HSBC, StanChart shares fall to 22-year lows

  • Falls follow reports on movements of allegedly illicit funds; shares fall amid wider selloff in stocks

LONDON: HSBC’s shares in Hong Kong and Standard Chartered’s in London fell on Monday to their lowest since at least 1998 after media reports that they and other banks, including Barclays and Deutsche Bank, moved large sums of allegedly illicit funds over nearly two decades despite red flags about the origins of the money.

BuzzFeed and other media articles were based on leaked suspicious activity reports (SARs) filed by banks and other financial firms with the US Department of Treasury’s Financial Crimes Enforcement Network (FinCen).

HSBC shares in London fell as much as 5 percent to 288 pence, their lowest intraday level since 2009, after the lender’s Hong Kong shares earlier touched a 25-year low. The stock has now nearly halved since the start of the year.

StanChart dropped as much as 4.6 percent in London to its lowest since 1998, against the backdrop of a broader sell-off in the market with the STOXX European banks index down 4.8 percent.

More than 2,100 SARs, which are in themselves not necessarily proof of wrongdoing, were obtained by BuzzFeed News and shared with the International Consortium of Investigative Journalists (ICIJ) and other media organizations.

In a statement to Reuters on Sunday, HSBC said “all of the information provided by the ICIJ is historical.” The bank said that as of 2012 it had embarked on a “multi-year journey to overhaul its ability to combat financial crime.”

StanChart said in a statement it took its “responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programs.”

Barclays said it believes it has complied with “all its legal and regulatory obligations, including in relation to US sanctions.”

The most number of SARs in the cache related to Deutsche Bank, whose shares fell 5.2 percent on Monday. In a statement on Sunday, Deutsche Bank said the ICIJ had “reported on a number of historic issues.”

“We have devoted significant resources to strengthening our controls and we are very focused on meeting our responsibilities and obligations,” a spokesperson for the bank said.

London-headquartered HSBC and StanChart, among other global banks, have paid billions of dollars in fines in recent years for violating US sanctions on Iran and anti-money laundering rules.

The files contained information about more than $2 trillion worth of transactions between 1999 and 2017, which were flagged by internal compliance departments of financial institutions as suspicious. 

The ICIJ reported the leaked documents were a tiny fraction of the reports filed with FinCEN. HSBC and StanChart were among the five banks that appeared most often in the documents, the ICIJ reported.

“It confirms what we already knew — that there are huge numbers of SARs being filed with relatively low numbers of cases brought through to prosecution,” said Etelka Bogardi, a Hong Kong-based financial services regulatory partner at law firm Norton Rose Fulbright.