'Own-use' bank bond issue to fall by €2bn
Published 08/11/2011 | 05:00
THE controversial programme that allows Irish banks to issue bonds to themselves and use them to get money from the ECB will shrink by more than €2bn over the coming months.
The news comes after the banks completed the latest rollover of about €16bn of 'own-use' bonds that they've been issuing to themselves since the turn of the year.
The ECB has agreed to accept the bonds on a "limited" basis because they're covered by a government guarantee. This also means the taxpayer is on the hook for any money that's not repaid.
The Irish Independent has learned that the programme, which peaked at €20bn earlier in the year, will shrink to about €14bn when the bonds are rolled over again in three months' time.
The shrinkage arises because banks were only allowed issue 'own-use' bonds to compensate for UK assets that were rendered ineligible by the ECB earlier this year.
In recent weeks, Irish Life & Permanent and Bank of Ireland have secured funding of about €2bn based on their UK assets.
The Irish Independent understands that those banks' use of 'self-held' bonds will have to fall by €2bn since they will no longer be able to argue that they need the funding to replace funding previously secured on UK assets that fell out of eligibility.
"Self-issued government guaranteed bonds have been a simple method of funding for Irish banks for some time now," said John Buckley, co-head of fixed income at Dublin-based Goodbody Stockbrokers.
"As other sources of funding have dried up, the covered banks have issued themselves bonds under the government guarantee scheme, to refinance with the ECB."
On January 1, the ECB stopped accepting securities in currencies other than the euro as collateral for funding. Irish banks began to issue own-use bonds the same month. (Additional reporting, Bloomberg)