Wednesday 7 December 2016

Central Bank had €17bn exposure to Depfa bank

Emmet Oliver

Published 18/05/2010 | 05:00

The IFSC-based
Depfa once
employed 300
people in the
Commons St
operation in
Dublin and was
seen as a great
addition to the
Irish banking
sector
The IFSC-based Depfa once employed 300 people in the Commons St operation in Dublin and was seen as a great addition to the Irish banking sector

THE Irish Central Bank was providing €17bn in repo loans to the German bank Depfa at the height of the financial crisis, new figures from its parent, Hypo Real Estate, reveal.

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The bank got into serious difficulties in 2008 and German bankers grew worried that it could become Germany's Lehman Brothers.

The 2009 annual report for Hypo Real Estate now discloses that the Central Bank here still has a €4bn exposure to Depfa-Hypo.

The Central Bank declined to comment yesterday but it is understood that the funds were provided to Depfa as part of the ECB's eurosystem of liquidity assistance.

Because Depfa was based in the IFSC, the Irish authorities became the conduit for the assistance.

Only Anglo Irish Bank has yet been granted a special liquidity fund by the Central Bank.

It is not clear precisely what collateral was submitted to the bank to trigger this funding.

A 'repo' or repurchase loan allows a borrower to use a financial security as collateral for a cash loan at a fixed rate of interest. Along with commercial paper and certificates of deposits, it is a chief way for banks to fund themselves, particularly when funding conditions are tough.

"The exposure in Ireland has declined appreciably as a result of the decline in the repo transactions with the Irish Central Bank in the first half of 2009,'' said Hypo Real Estate in its annual report, covering 2009, which was released last week.

German bankers became transfixed in 2008 with how to bailout Depfa and its parent Hypo Real Estate.

Depfa, which was mainly a public-sector lender, could not secure short-term liquidity to cover its long-term business in 2008, as banks were reluctant to lend to each other.

The IFSC-based Depfa once employed 300 people in Dublin.

However, in the tense days of 2008 Hypo struggled to keep Depfa open, and needed a total of €102bn in credit lines and debt guarantees from the German authorities carry it off.

Hypo Real Estate has also cropped up in relation to funding problems at Anglo Irish Bank in 2008.

The two banks did 'back-to-back' bond deals in May 2008, as they tried to show the market they could secure funding in the normal way.

Irish Independent

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