The European Central Bank said today it would stop accepting as collateral Greek sovereign bonds and other assets backed by the country's government from July 25th, though it would review the situation once the country's lenders had completed a visit.

The ECB move will force Greek banks to turn to the national central bank for funds under the emergency liquidity assistance (ELA) programme that are more expensive than those available in the ECB's regular liquidity operations.

"The ECB will assess their potential eligibility following the conclusion of the currently ongoing review, by the European Commission in liaison with the ECB and the IMF, of the progress made by Greece under the second adjustment programme," the central bank said in a statement.

The ECB said the exclusion was due to the expiration of the guarantee scheme, which would have meant that the ECB would have to bear losses in case of default.

The ECB added that Greek banks would be able to continue to get funding during this period from the Greek national central bank.

Greek banks had tapped a total of €62 billion in ELA funds from the Greek central bank at end-June, in addition to €74 billion in regular ECB liquidity operations.

Greek banks would almost certainly go bust if their central bank funding was withdrawn.

Banks in other euro zone countries also own large chunks of Greek debt, though they are more likely have other assets to use as collateral and are thus not hit as hard.

The ECB requires guarantees in the form of eligible collateral from all banks that seek central bank funds in its lending operations.

Reuters