IRISH BANKS’ dependence on central bank funding fell by €5.7 billion in the month to February 24th, according to figures published by the Irish Central Bank yesterday.

As of that date, the total amount of official lending to commercial banks stood at approximately €132 billion. A year earlier, in February 2011, when dependence on such funding reached an all-time high, the figure stood at €187 billion.

Traditionally, central banks are the “lenders of last resort” to the banking system. Owing to the weakness of the Irish banking system since 2008, it has been unable to borrow from private sources and has had to resort to official central bank funding.

In mid-2007, before the crisis erupted, financial institutions’ borrowings from official sources averaged about €25 billion.

Although dependence has been lessened considerably over the past year, it remains very substantial. The current amount outstanding – €132.4 billion – exceeds the annual output of the entire economy, as measured by gross national product (GNP).

The decline in reliance on central bank funding in January was accounted for almost entirely by a reduction in borrowing from the European Central Bank.

ECB liquidity to Irish banks fell to €87.1 billion, from €92.6 billion in January. The February figure was the lowest since mid-2010.

The amount of outstanding Emergency Liquidity Funding (ELA) remained largely unchanged in February, standing at approximately €45 billion.

At its peak 12 months ago, total ELA outstanding reached €70 billion.

ELA is provided by the Irish Central Bank. In the euro system, such funding is resorted to when a commercial bank no longer has collateral to meet the ECB’s standards for lending.

In late summer 2010, Irish-based banks suffered a massive loss of cash deposits. In order to fill the resulting void they sought additional central bank funding. As they did not have collateral of sufficiently high quality to borrow from the ECB, they had to resort to the Irish Central Bank.

ELA funds are more expensive than ECB funds.

Although neither the Central Bank nor the ECB provides much significant detail on ELA, it is known that if banks fail to repay these borrowings, the national central bank which provides them takes the losses. If standard ECB funding is not repaid, the losses are spread across the euro system.