ELA, or Emergency Liquidity Assistance, is program put in place by the ECB, effected in conjuction with national central banks, to ensure that European deposit banks are able to meet depositor demand, regardless of their liqudity levels. The purpose of ELA is, of course, to prevent any possible runs on banks, but the result is that more illiquid and potentially insolvent banks draw more money out of the ECB.

Q. Oh, no, not another acronym out of Europe!
A. They’re trying every possible combination of the alphabet. But this one is really interesting, because it answers a Sherlock Holmes-type mystery. In Silver Blaze, Holmes remarks about the curious incident of the dog in the night time. The inspector says, but the dog did nothing in the night time… and Holmes says, that’s what’s curious. He didn’t bark. Here, that question is: why haven’t there been big depositor runs on the banks throughout the EZ?

Q. Right, there’s been no “Northern Rock” moment, even in Greece and Ireland, although those banks are on the brink of insolvency. So, right, why haven’t those depositors gone to yank their Euros out while the banks still have them?
A. Bank runs start when one person can’t withdraw. So the EBC had a secret plan to ensure that didn’t happen: the ELA, the Emergency Liquidity Assistance plan. Under that plan, even banks that couldn’t sell any more collateral to the ECB under LTRO, and were out of Euros, could still get Euros to meet depositor demands.

Q. Well, OK, how exactly?
A. From all accounts, by simply calling up the central bank of the country in question, and saying you’re out of Euros for depositors, and also out of qualifying collateral for LTRO. The central bank then says: what can you give me? And the local bank says: a promise to pay you later. And the central bank says “OK”! , calls up the ECB, and gets Euros wired across.

Q. So it the country’s central bank that bears the risk of these emergency loans?
A. In principle; but of course if it can’t pay, it’s really the ECB that takes the hit…

Q. And has this been a big program?
A. Yep, maybe 150 bn Euro between Greece and Ireland. It really just shows you how deep the commitment has been all along to maintaining the Eurozone, despite all the headlines and tough talk. The concessions Merkel got last Friday… the central bank regulatory authority, etc….were long overdue. Because, fact is, even apart from all the other programs that already existed, like the LTRO and the ESFS, this secret life support system was backing up these debtor nation banks all along– proving that the countries have been operating as a union more deeply than the headlines or local politics would indicate.