Consequences of the Financial Crisis and Capital Adequacy in Greek Banks

Abstract

Distinct from other countries, in Greece, the global financial crisis continued during the decade 2010 and became an economic crisis resulting in a recession. It resulted from implementing measures aimed at reducing Greece’s high public debt, as the country had reached an agreement with the European Union and the International Monetary Fund on public borrowing. Unli ke other countries, public debt is at the core of the Greek crisis. The economic crisis has primarily affected the Greek banking system, capital banks, an d specialized credit institutions such as cooperative banks. The economic depression during the decade was reflected in the banks’ activities and results, while in the middle of the decade, it led to a considerable increase in non- performing loans. In addition to these consequences, most Greek banks suffered from the halving of the value of Greek bonds in 2011, as they were involved in financing the Greek government. The generalization of these phenomena distinguishes the Greek case from other banking systems while limiting the argument of poor management for the outcomes of the banking crisis in Greece. Banks’ difficulty meeting the capital requirements set out in the Basel Regulations III was a vital component of the banking crisis. As a result of these difficulties, some banks were unable to meet the requirements and were forced to close or be sold by their parent banks. In the case of a particular category of banks, the so-called economically significant banks, there was substantial public support for capitalization, contrary to the other banks, which had to raise the necessary capital themselves. This article examines the impact of capital requirements on bank development, both for capital an d cooperative banks, and also attempts some comparative accounts between them.