ECB lending to Greek banks rose by a further €7.2 billion in March, to stand at €67.1 billion, according to Bank of Greece balance sheet statistics released yesterday. Banks, additionally, withdrew €3.6 billion from their reserve accounts at the central bank, implying an increase in their net borrowing from the ECB of €10.8 billion – see chart.

The rise was needed to cover a continuing loss of wholesale and retail funds – likely to have accelerated this month. Foreign banks withdrew a net €8.2 billion from the Greek banking system in March, while deposits from private non-bank residents fell by €2.6 billion. These deposits declined by €11.3 billion, or 4.7%, during the first quarter. Foreign banks have an aggregate net "short" position vis-à-vis the Greek banking system, with borrowing exceeding loans by €26.6 billion. This partly counterbalances their exposure to Greek government bonds.

Bank of Greece lending to Greek banks remains below Central Bank of Ireland lending to the Irish banking system – €82.6 billion in March. As a proportion of banks' assets, however, support is the same – 13.4% versus 13.5%. The Greek loan of €67.1 billion amounts to 27% of annual GDP, based on the OECD's 2010 forecast.

Greek banks' ability to access further ECB funding may be constrained by a shortage of acceptable collateral. Their holdings of securities excluding shares and derivatives stood at €98.1 billion in March but a significant portion may fail to meet ECB eligibility standards – government securities, mainly Greek, amount to €42.7 billion. ECB rules also allow advances against non-marketable assets, suggesting that banks can borrow against their €9.7 billion of direct loans to the Greek government and possibly even part of their €192.5 billion domestic private-sector lending book. At some point, however, ECB hawks are likely to baulk.

Suggestions that the rescue package currently under discussion should include a restructuring of government debt (see Roubini / Das in today's Financial Times) fail to address the consequences for the banking system. A debt write-down would wipe out banks' capital and cut off their access to ECB funding. Any package, therefore, would need to bail out the banks as well as the government, probably making it prohibitively expensive.