Citigroup, Goldman Sachs & ICAP Reportedly Running "Grexit" Stress Tests

Global financial institutions have started preparing their systems for the eventuality of a Greek exit from the euro zone as

rp_Greece-map-294x300.pngA number of financial institutions including UK listed broker-dealer ICAP Plc (LON:IAP) have started stress testing their systems to prepare for the possibility of a ‘grexit’ from the euro zone as the elections on January 25th are nearing. Major banks, including Citigroup and Goldman Sachs, are aiming to secure the functionality of their systems in extreme market conditions.

Foreign exchange trading platforms are tested for a variety of scenarios, including the return of the Greek drachma to the currency markets. Other functionalities being stress-tested are potential capital-controls constraints and counterparty risk checks for Greek debt exposure.

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The latest polls from Greece suggest that the radical leftist moods across the electoral spectrum are supporting the possibility of a dramatically different course of action going forward. Despite the threat of a ‘grexit’ While the radical left leader Alexis Tsipras has pledged to fund the first quarter Greek government expenditures by issuing T-bills, a warning from the finance ministry might derail his plan.

Meanwhile, the euro has lost several big figures after rising risk aversion to the single currency and is currently trading close to its lowest levels since 2006 against the US dollar.

Funding Conundrum

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The radical left Syriza party’s prospective government would need approval from the EU and the International Monetary Fund (IMF) before proceeding with an issue of short-term government paper.

Mr. Tsipras is running on a platform of reversing austerity measures and further restructuring Greek debt. While on Saturday he said that treasury bills can be used by the government to secure the country’s funding needs until March 2015, the Greek finance ministry issued a statement disproving his thesis.

“Greek banks will have difficulty in securing the necessary liquidity in order to buy Greek treasury bills if the review of the economic program by the EU/IMF is not completed or extended after the 28th of February,” the finance ministry said in a statement.

Latest Elections Poll Results

A stable lead by Syriza against the conservative party led by former prime minister Antonis Samaras, New Democracy, has been an ongoing theme in election polls during recent weeks. The latest poll results are no different with two polls giving between a 2.6 and 3.2% lead to the radical left.

Latest election polls could lead to grexit
January 11th Poll Results, Source: To Vima Newspaper

A slew of smaller parties follow, tied around the 5% mark which, for now, supports the possibility of a government forming after the election. If history is any guide, this could only be the first in a series of elections, since should an anti-austerity coalition be formed, the Greek financial system is very likely to be materially affected by the lack of ECB funding.

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