Emergency Central Bank loans increase to €70bn
Figures 'underline precarious funding situation' at lenders
Published 12/03/2011 | 05:00
EMERGENCY loans from the Irish Central Bank to banks in Ireland rose by €19bn last month to a staggering €70bn, according to figures published last night.
Emergency loans to the banks from the European Central Bank (ECB) fell by €10bn at the same time.
The figures show the Irish Central Bank had lent €51bn to Irish banks by November.
"It further underlines the pretty precarious funding situation of the Irish banks," said Dermot O'Leary, chief economist at Goodbody Stockbrokers.
"Overall, you've got a €10bn increase in central-bank reliance," he added.
The loans from the Irish Central Bank were made through its Exceptional Liquidity Assistance (ELA) scheme.
Lending under the scheme has increased from €14.6bn in February 2010 to €70bn last month. Lending from the ECB rose from €84bn to €116.9bn over the same period.
The schemes exist to allow banks to access money when they have limited or no access to normal financing operations.
Both ECB and Irish Central Bank schemes are only supposed to be used on a temporary basis but Irish banks now depend almost completely on the loans. The ECB is keen to cut back on the amount it is owed and Dublin is increasingly picking up the slack.
The Central Bank's emergency lending is now bigger than NAMA and is now a fixture of bank's financing operations.
Despite the extraordinary scale of lending, the Central Bank refuses to publish details of how the scheme works. A spokesman for the Department of Finance said that ELA is a matter for the Central Bank.
Last month's fall in ECB lending to banks came after the Frankfurt-based bank tightened its rules over the quality of collateral it is willing to hold against the loans it makes.
That collateral is made up of assets such as books of mortgages and government bonds.
A spokeswoman for the Central Bank in Dublin said the change forced banks in Ireland to repay around €10bn in ECB loans, which they were able to replace by borrowing in Dublin using the same collateral.
"Over half the increase in exceptional liquidity assistance" relates to "collateral issues," the Central Bank spokeswoman said in an emailed statement.
Some of the collateral transferred to the Irish Central Bank may eventually be shifted back to the ECB after ratings agencies confirmed credit for the assets meets the new standard.
However, the change only explains half of the increase in loans to the banks from the Central Bank in Dublin.
The other, nearly €10bn in extra support, suggests that deposits continued to flow out of the system in February, or that new holes are emerging in the balance sheets of banks as a result of bad debts.