ECB approves emergency funding line for Greek banks - banking source

Water droplets from melting ice are seen on the entrance sign of the new European Central Bank (ECB) headquarters in Frankfurt January 21, 2015. REUTERS/Kai Pfaffenbach

ATHENS (Reuters) - The European Central Bank has approved an emergency funding line for Greek banks to be provided via the country's central bank, a banking source told Reuters on Wednesday.

Last week, a tightening of liquidity ahead of elections on Jan. 25 prompted the Bank of Greece to ask the ECB to approve an emergency liquidity assistance (ELA) line for the country's top banks.

"The ELA line was approved for two weeks," the source said. "The issue will be looked into again after two weeks."

The Bank of Greece put in the request after two large lenders applied to be able to tap emergency funding as a precaution because customers have been withdrawing cash before the snap election.

Polls show the anti-bailout Syriza party is set for a comfortable victory in the vote, which could trigger a standoff with the European Union and IMF and push the country close to bankruptcy or an exit from the euro zone.

The ECB itself may announce on Thursday a programme enabling it to buy 50 billion euros ($58 billion) in bonds per month from March, a euro zone source said on Wednesday, in a bid to support the euro zone economy and ward off deflation.

Under emergency liquidity assistance, national central banks can lend to commercial banks but have to get approval from the ECB to do so. Greek banks relied on it heavily at the peak of the debt crisis in 2012 but had repaid it by early last year.

Greek lenders have suffered a liquidity squeeze from cash withdrawals, purchases of T-bills and as foreign banks do not renew repo lines ahead of Sunday's vote.

Syriza has run on pledges to end austerity policies and renegotiate the country's debt, sparking fears of a standoff with Greece's international lenders that could reignite a financial crisis.

(Reporting by George Georgiopoulos; Editing by Hugh Lawson)

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