Bank borrowing falls €1.7bn
THE COMMERCIAL banking system continued to wean itself off funding from the central bank system in August, new figures showed yesterday. Total borrowings by the commercial banks from official sources fell by €1.7 billion on the month, according to the Central Bank of Ireland.
This was the first time since September 2010 that such lending fell below €120 billion. In that month two years ago, a massive withdrawal of cash deposited in Irish banks began. In order for the banks to remain liquid, they were forced to borrow from the central banking system (central banks are traditionally known as the lenders of last resort for banks with funding difficulties).
The amounts borrowed soared in the following months, raising concerns at the European Central Bank in Frankfurt. The dependency of Irish banks on ECB and Irish central bank support was a key factor in Ireland’s acceptance of an EU-International Monetary Fund bailout in November 2010.
Central bank lending in the euro zone usually comes from the ECB, but since late 2010 the Irish banks have had insufficient high-quality collateral to obtain funding. In such cases the ECB can allow national central banks to provide “Exceptional Liquidity Assistance” (ELA).
Although the Central Bank does not provide details of ELA provision, an accurate measure of the amount can be discerned from an examination of its balance sheet.
Since early 2011, ELA has accounted for about a third of all central bank lending to Irish banks. In August, ELA fell to €40.8 billion, a decline of almost €1 billion on the month and down from €70 billion at peak in February last year. ECB lending fell by a similar amount in August to stand at €79 billion, down from a peak of €136 billion last November.