Irish banks will obtain cheap cash for at least five months
IRISH banks will be able to continue to tap the European Central Bank for massive amounts of cheap cash until at least October, after the ECB yesterday vowed to extend its 'full allocation' auctions.
The news means that Irish banks, which are being propped up by about €115bn of liquidity from the ECB's "regular" operations, won't have to competitively bid for the cash or face paying higher interest for at least five months.
The ECB has traditionally operated liquidity "auctions", where banks bid competitively for available money based on the interest rate they're willing to pay.
The process was abandoned in favour of "full allocation" when the credit crunch hit.
The ECB has vowed to scale back those "non-standard measures", but yesterday confirmed that it would continue to operate "full allocation" for its three main liquidity operations until October, reflecting the "abnormal" financial markets.
The money can only be drawn down by banks that have high-quality collateral to pledge with the ECB, but Frankfurt has suspended some of its usual rules to enable Irish banks to draw down cash.
When "full allocation" ends, Irish banks will still be able to draw down as much money as they need but are likely to have to pay more for it as competitive bidding hikes the price.
Irish banks are also drawing about €65bn of "emergency liquidity assistance" under a programme operated by the Central Bank of Ireland to loan money to banks that don't have enough high-quality collateral to tap the ECB directly.
The money given out under this programme is explicitly guaranteed by the Irish Government.