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Busted bank draws down billions without any collateral

ANGLO Irish Bank is drawing down billions of euro from the Central Bank based solely on guarantees from Anglo and the Government, it emerged yesterday.

The revelations, contained in Anglo's annual report, shine a spotlight on the Central Bank's emergency funding programme for the first time and show how starkly it contrasts with normal European Central Bank operations.

In the ECB's programme, banks are only allowed to draw down funding if they can pledge assets as collateral, essentially transforming the ECB into a massive pawnbroker.

Anglo yesterday confirmed that it was able to draw down money from the Central Bank of Ireland using a 'deed facility', where no physical collateral is exchanged.

"The deed facility is an unconditional facility guaranteed by the Government and counter guaranteed by Anglo," Anglo chief executive Mike Aynsley told the Irish Independent.

"There is no collateral, the guarantees are the collateral."

Anglo Irish Bank had €28bn of borrowings from the Central Bank of Ireland at the end of last year.

That figure is believed to have shot up to more than €40bn in recent months, after Anglo surrendered its deposit book to AIB.

The €40bn is split between the deed facility, and other arrangements which are secured on Anglo's loan book and the bank's 'promissory note', a promise from the Government to inject specific amounts of cash.

A breakdown of how much of that €40bn plus is secured on the deed facility is unavailable, but the facility's existence is likely to provoke concern in other European countries, who are already asking questions about the Central Bank of Ireland's liquidity operations.

Anglo has no realistic prospect of getting liquidity from private investors because "the market is shut", the bank's finance boss Maarten van Eden said.

The interest rate Anglo pays the Central Bank of Ireland has never been publicly revealed, but is believed to be less than 3pc.

The facility cost Anglo €435m last year.

Irish Independent