Banks' dependence on ECB funding continues to fall

Sat, Jun 11, 2011, 01:00

THE RELIANCE of Irish banks on funding from the Central Bank and the European Central Bank continued to decline last month, as the banks benefited from a temporary deposit boost from the National Treasury Management Agency.

At the end of May, the banks’ total borrowings from the Central Bank in Ireland and the ECB stood at €156 billion, down from €160 billion in April.

The NTMA has lodged a total of €19 billion earmarked for recapitalising the banks with AIB, Bank of Ireland, Irish Life & Permanent and EBS since January, thereby reducing the reliance on ECB and Central Bank funding.

This arrangement is expected to cease before the end of next month, when the NTMA cash will be withdrawn and returned to the banks as capital under a planned €24 billion recapitalisation.

Yesterday’s figures – which cover both domestic institutions and international banks with operations in Ireland – also show that Irish banks continued to draw heavily on emergency liquidity assistance from the Irish Central Bank.

Some €53.7 billion was provided to banks in the form of “other assets” in May – the bulk of which refers to emergency liquidity funds – slightly lower than the €54.1 billion loaned to the banks at the end of April.

The dependence on direct ECB funding also decreased during May, standing at €102.3 billion at the end of the month, a 3.5 per cent drop from the €106.1 billion recorded at the end of April.

On Thursday, the ECB confirmed it would maintain its special-term refinancing operations for “as long as needed and at least until the end of the third quarter”. The fixed rate in these special-term refinancing operations will be the same rate as the main refinancing operations rate prevailing at the time.

The gradual loss of deposits at the Irish banks over the past year has led to a surge in borrowing from the ECB which reached a peak last November, when banks here were in receipt of €136.4 billion in funding.

The dramatic rise in Irish financial institutions’ dependence on ECB funding, at a time when other countries were reducing their reliance, is believed to have been one of the key triggers behind the IMF-EU bailout.

Ireland’s dependence on direct ECB funding has been gradually decreasing since then, helped by the temporary NTMA deposit.