Sunday 11 December 2016

Borrowings from ECB below €100bn mark for first time in year

BANKS

Published 13/08/2011 | 05:00

IRISH banks' borrowings from the European Central Bank have dipped below the €100bn mark for the first time in a year, but institutions are still upping their use of more expensive "emergency" funding.

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The paradoxical picture emerged in monthly data released by the Central Bank of Ireland yesterday. A spokesman said last night he couldn't give any further information or context.

AIB, Bank of Ireland, Permanent TSB and EBS are all expected to reduce their reliance on last-resort central bank money this year, as they sell off assets and attempt a return to money markets.

Observers had expected that the banks would pay down their "emergency" lending from the Central Bank of Ireland first, since the interest rate on those borrowings is more than twice the 1.5pc charged by the ECB.

Borrowings

But yesterday's data shows that borrowings from the Central Bank of Ireland rose about €1.3bn to €56.9bn in the month to July 27, while borrowings from Frankfurt fell about €5.4bn to €97.6bn.

The higher "emergency" borrowings may be linked to Anglo Irish Bank/Irish Nationwide, which relies heavily on Central Bank of Ireland funding to pay off any bonds that mature. The bank could not be reached for comment yesterday.

Timing issues may also be responsible for the mix of emergency and "regular" funding used -- Frankfurt offers money on set days for periods of between seven and 203 days, the the Central Bank of Ireland does more flexible "bilateral" deals with banks.

Collateral

Banks that have enough high-quality collateral to take to Frankfurt usually favour the ECB cash since the interest rate is much cheaper, but may not have wanted to be tied into Frankfurt's relatively rigid arrangements in the run-up to their July 31 bailouts, which significantly altered institutions' funding needs.

The end-July data, which also covers foreign lenders like Ulster Bank, shows Irish banks had gotten €70.1bn from the ECB's "long-term refinancing operations", which give cash for about 90 days, plus another €27.5bn from "main refinancing operations" of seven-day money.

Irish banks are believed to have been heavy users of the 203-day money offered by the ECB on August 11, as a measure to ease funding pressures on banks amid the latest market turmoil.

Irish Independent

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