Shocking statistics reveal Ireland's primary lender
Published 11/12/2010 | 05:00
The latest shockingly high figure for lending from the Frankfurt and Dublin central banks to banks in Ireland tells a number of stories. From the timing of the EU bailout, to the increasing shifting of the bailout burden back on to Irish taxpayers, not one is a happy tale.
The timing of the huge €16bn transfer of funds to the banks last month appears to have been crucial. The statistics paint a picture of huge flows of central bank support to the banking system in November, at the height of Ireland's external debt crisis.
Funds flowed into the banks from the two central banks as the market became concerned about the cash position (liquidity) of the main Irish banks,after Bank of Ireland and AIB revealed details of billions in corporate deposit outflows.
The statistics show that the need for liquidity from the central bank system peaked just as Ireland unsuccessfully battled to fend off the IMF/EU bailout.
Indeed, with the European Central Bank (ECB) leading the charge to get a deal agreed, the massive transfer of liquidity to the banks in November made the bailout unavoidable.
But maybe the most striking revelation in the statistics is that so much of the lending to the banks is now coming from the Central Bank of Ireland itself.
Central bank data published last night showed that the Central Bank has lent €44bn to Irish banks, €34bn of it in the past 12 months.
It means that Ireland, rather then the ECB, is becoming the primary lender to banks here, providing €10bn to their €6bn in November.
To some extent the difference between the Central Bank and the ECB is slight. The Central Bank is a member of the euro system -- its governor sits on the ECB's governing council and, in most areas, the Central Bank is a subsidiary of the ECB.
This means the money that the Central Bank is lending presumably originates with the ECB. The loans that the ECB makes are routed through the Central Bank.
This makes a difference, though. Risk taken by the ECB is spread across the eurozone, while risk taken on by the Central Bank ultimately stops with its owners -- us.
It also comes as the ECB becomes ever more nervous about its exposure to Ireland's struggling banking system. There is no doubt about the concern in Frankfurt over the high level of ECB borrowings by Irish banks, but there will be no alternative lending from private sector funding until confidence in the banking system is restored somehow.