ECB considers tightening emergency funding for Greek banks

European Central Bank policy setters are considering tightening Greek banks' use of an emergency funding lifeline but keeping the back-up facility open, people familiar with the matter said.

Such a move would curb those lenders' access to a multi-billion-euro central bank support that they use to pay out deposits, making it harder for them to meet such demands.

"There is a possibility of an extension," said one of the people with direct knowledge of the telephone discussion among the ECB's decision-making Governing Council, adding that a bigger 'haircut' is being discussed.

Such a step involves imposing a higher valuation discount on the security banks offer for this funding to reflect the impact of a likely default by Greece on Tuesday on the International Monetary Fund.

If the haircut is steeper, it curbs banks' use of this Emergency Liquidity Assistance (ELA). But the calculation is not usually publicized, meaning it would not be clear how much such funding had been closed off.

The limit for funding is now roughly 89 billion euros ($99 billion), sources have told Reuters, and has been held steady at this level for a number of days amid growing protest from Germany.

Even before Greek Prime Minister Alexis Tsipras called a referendum for next Sunday on creditors' bailout demands, the head of Germany's Bundesbank had criticized the use of such emergency credit.

If Greece were to leave the eurozone, this funding, which is a form of overdraft with the eurozone's central bank system, would fall to the bloc's other members to pay.

Speaking on German television on Saturday, German Finance Minister Wolfgang Schaeuble put a question mark over the solvency of Greek banks, a key condition to qualify to receive such...