What Will Happen To Greek Banks?

Although Greece and its creditors were able to come to a preliminary agreement regarding the nation's bailout funding, Greek banks are still struggling to stay afloat after several weeks without additional funding left them strapped for cash.

Now, EU officials and Greek policymakers must agree on the best course of action for the nation's floundering financial system.

EU Intervention

Many believe that the eurozone's rescue fund, the European Stability Mechanism, should be used to recapitalize Greek banks. Such a decision would mean the ESM would have a direct stake in the banks and would give the EU more control over how the banks were run in the future. However, using the ESM would also require Greek banks to impose some of their losses on bondholders and large depositors. In that case, accounts worth €100,000 or more would be forced to take on the loss, according to Reuters.

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Detrimental To Economy

Imposing banking losses on depositors would mimic the financial meltdown that happened in Cyprus, but in Greece the consequences could be further reaching. In Cyprus, large depositors were typically Russian tycoons who were banking in Cyprus to avoid taxes. In Greece, most of the large accounts are held by local businesses, so forcing them to take a loss could take a toll on the nation's already struggling economy.

Add It To The Pile

Another option would be adding the €25 billion needed by Greek banks on to Athens' already sky high debt mountain. However, taking that route could be dangerous as well since Greece's debt is already upwards of €300 billion, an amount the International Monetary Fund has warned is excessive.

Still, Greek policy makers hope they can get EU officials to agree to this option as it would give Athens control over the banks' futures and save small businesses from shouldering the banks' losses.