Which means that any substantial attempt to bailout Greek banks would require a massive, new capital injection to restore confidence; however as we reported, a recapitalization of the Greek banks will hit at least shareholders and certain bondholders under a new set of European regulations—the Bank Recovery and Resolution Directive—enacted at the beginning of the year. And since Greek banks are woefully undercapitalized and there is already a danger of depositor bail-ins, all securities that are below the depositor claim in the cap structure will have to be impaired, as in wiped out.
Now, Europe and the ECB are both well aware just how insolvent Greek banks are, and realize that a new recap would need as little as €25 billion and as much as €50 billion to be credible (an amount that would immediately wipe out all existing stakeholders), and would also result in a dramatic push back from local taxpayers. This explains why Europe is no rush to recapitalize Greece – doing so would reveal just how massive the funding hole is.
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