French banks have agreed to a plan to rollover their holdings in Greek debt, according to the Financial Times. Banks will accept a longer term for their current holdings and promise to rollover current debt investments into new Greek debt.
The deal agreed with the French banks proposes that banks reinvest 70 per cent of the proceeds from bonds that fall due between 2011 and 2013. 50 per cent would be rolled over into 30 year bonds. The remaining 20 per cent would be reinvested in triple-A rated investments and put into a special purpose vehicle, to act as a built-in guarantee for the repayment of the 30 year Greek bonds.
This will get French banks, like Societe Generale, BNP Paribas, and Credit Agricole, off the hook to a certain extent for their exposures. According to the FT’s report, the existence of an SPV will allow these banks to move Greek debt off of their balance sheets.
The German government says it’s waiting for a private sector proposal from its banks to deal with the crisis. If Greece passes its new austerity budget this week, expect this sort of private sector involvement to be announced more formally as part of Greece’s new bailout.
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