Cash held by Irish banks down €3.6bn in October

EURO CRISIS:CASH ON deposit in Ireland-based banks fell by €3.6 billion in October compared to a month earlier, according to figures published yesterday by the Central Bank of Ireland.

In August and September, deposits increased for the first time in a year. From September 2010 to July of this year, the banking system lost one-third of its deposit base.

In October, total deposits stood at €587 billion. This remains above the low-point of €577 billion in July.

These figures are one of the most important indicators of the health of the banking system. Traditionally, banks have funded their activities largely from deposits.

The large loss of deposits from September last year forced the system to become hugely dependent of central bank funding to continue functioning. Weaning the Irish banking system off such funding is one of the central objectives of the EU-International Monetary Fund bailout.

Yesterday’s figures disaggregate depositors according to their place of residence – Ireland, the euro zone and the rest of the world. While Irish and euro area depositers broadly maintained the amount of cash lodged in the Irish banking system, depositers resident outside the single currency zone withdrew more than €4 billion in October. The loss of deposits in October, though small, was likely to reflect concerns about the wider euro zone rather than Ireland-specific issues, as has been the case in the past.

The prospect of a break-up of the euro zone increased in November owing to the deepening of the crisis. This, and the raising of the possibility by some EU leaders for the first time that euro participants could leave the currency bloc, is likely to have caused a further outflow in November.

All figures reported above include the large International Financial Services Centre. Yesterday’s figures on the deposits in the five domestic banks guaranteed by the Government provide further evidence to suggest that Ireland-specific issues were not the cause

In October, the covered banks recorded their third consecutive monthly rise in deposits. Irish and euro area residents increased their cash holdings in October, while non-euro area residents cut theirs.

Yet another set of figures gives Irish resident deposits in all banks in Ireland. In October, both households and businesses held more in deposits than in September.

Last month, Irish households held €91.9 billion on deposit, little changed over six months, but down from the all-time peak of €99.5 billion in January last year.

Yesterday’s figures include bank lending data. In October, total lending to households fell on the previous month by €614 million, following a net monthly decline of €183 million in September. All categories of lending to households fell over the month, with a reduction of €319 million in loans for house purchase. Declines of €248 million and €48 million in loans for consumption and other purposes, respectively, were recorded. Lending to businesses fell €500 million during October.