Monday 18 December 2017

Banks to 'issue more bonds for themselves'


Laura Noonan

THE exceptional €17bn scheme that allows Irish banks to effectively invent collateral to tap the European Central Bank's (ECB) cheap liquidity facilities is set to continue until at least November.

The news comes seven months after the banks began the previously unheard of practice of issuing bonds to themselves, and then pledging them as collateral with the ECB.

The scheme helps the banks because it means they can continue to access the ECB's ultra- cheap money even when they run out of collateral, rather than having to resort to more expensive funding from the Central Bank of Ireland.

The ECB granted Irish banks permission to issue themselves a limited number of the bonds as part of December's bailout deal, to compensate for new restrictions on pledging foreign currency assets with the ECB.

Officials have stressed that the scheme is temporary, but the ECB has never publicly disclosed its duration.

Documents published by the National Treasury Management Agency show that AIB/EBS, Bank of Ireland and Irish Life & Permanent have all rolled over their so-called 'self-held' bonds in recent days.

The bonds now mature at various dates from late October to mid-November.

AIB and EBS's combined tally is a virtually unchanged €4.7bn under the latest maturities, while Irish Life & Permanent's is down marginally at €3.3bn.

Bank of Ireland had €9.68bn worth of self-held bonds maturing at various dates in August -- so far just €8.7bn of this has been rolled over for another three months.

The bank may issue more of the bonds over the coming days.

The Irish State is ultimately on the hook for all the self-held money, since the so-called 'self- held' bonds are covered by the same Government guarantee which can be used for regular bank bonds.

Sources point out, however, that the Government would also have been on the hook if the banks had to resort to funding from the Central Bank of Ireland, since that money is all covered by a "letter of comfort" from the Finance Minister.

Irish Independent

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