Greek banks okay with stress but not default: ECB's Knot

AMSTERDAM (Reuters) - Greek banks are solvent and could withstand some stress but would run into trouble if the Greek government were to default, European Central Bank Governing Council member Klaas Knot told the Dutch parliament on Tuesday.

Knot, who is also the head of the Dutch central bank, told the finance committee that Greek banks' collateral would become "problematic" in case of a default.

Greek banks hold a lot of government debt and "that would become more problematic at the moment that a default actually takes place", he said.

He stopped short of saying the ECB would no longer accept it.

Months of negotiations between Greece and its creditors abruptly ended on Sunday, leaving Athens with about two weeks before a 1.6 billion euro ($1.8 billion) payment to the International Monetary Fund is due.

News of the breakdown prompted investors to dump Greek stocks and bonds and on Tuesday briefly pushed European stocks to their lowest level in four months.

Knot declined to speculate on what a default might mean, saying only that "a whole bunch of things would happen".

"As long as the default doesn't occur, and as long as there is perspective for an agreement between creditors and Greece that would avoid a default, the collateral that we accept will be valued at the normal value," he said.

(Reporting by Anthony Deutsch and Toby Sterling; Editing by Louise Ireland)