FIGURES RELEASED yesterday show that banks based in Ireland increased very substantially their dependence on central bank funding in September.
From the end of August to September 24th, the amount of European Central Bank (ECB) short-term lending to credit institutions in Ireland rose by more than €24 billion, to stand at just over €119 billion.
The figures were released by the Irish Central Bank yesterday.
Traditionally, banks do not depend a great deal on central bank funding as it is more expensive than funds raised from private institutions and markets. Since August 2007, when the credit crunch began, banks in many countries have had difficulty raising short-term funding and have relied on central banks for their liquidity needs.
This trend has been particularly marked in Ireland owing to the weakness of the banking system.
The large increase in ECB funding in September was expected as the original bank guarantee scheme, put in place on September 29th, 2008, expired on September 29th, 2010.
Most of the debt issued by the covered banks after the guarantee was put in place matured before the end of September 2010 deadline. This had to be repaid and banks needed to raise funds to do this – hence the €24 billion increase in total ECB funding in the four weeks to September 24th.
Of the total outstanding amount (of €119 billion), Irish institutions accounted for €68 billion and foreign banks €51 billion, according to estimates made by Dublin-based financial services company Glas Securities.
Of the outstanding funding to Irish institutions, an estimated €26 billion was accounted for by Anglo Irish Bank and Irish Nationwide.
All of the above figures refer to funds for which the financial institutions have provided collateral to the ECB. Additional multi-billion euro emergency liquidity funding, which is not collateralised, has been made available to Anglo Irish Bank.
Irish banks are expected to remain heavily dependent on ECB funding for some considerable time to come.
Even with the backing of the State, under the eligible liabilities guarantee scheme, banks have not raised market funding publicly since April.
A series of downgrades of Irish bank debt instruments this week reflects the weakening credibility of the State’s guarantee as concerns about its creditworthiness remain elevated.
