Banks' reliance on ECB and Central Bank funds falls slightly

IRISH BANKS:IRISH BANKS' reliance on Irish Central Bank and European Central Bank funding dropped slightly last month, from €158.6 billion in June to €154.5 billion, though Ireland still remains one of the main recipients of ECB funding.

Figures released yesterday by the Central Bank show funding to Irish banks fell below €100 billion for the first time in almost a year, to €97.5 billion. This was partly offset by an increase in funding from the Central Bank under its emergency liquidity assistance programme.

Data shows some €56.9 billion of “other assets”, which mainly comprise emergency liquidity funding, was on loan to Irish banks at the end of July, up slightly from €55.6 billion the previous month.

Irish domestic and foreign-owned institutions account for close to one-fifth of the ECB’s total lending to euro zone banks.

According to an ECB spokesman, it has approximately €533 billion on loan to euro zone banks. The Irish Central Bank’s emergency liquidity assistance is believed to be secured using collateral which would not normally be acceptable to the ECB.

The gradual loss of deposits at Irish banks over the past year has led to a surge in borrowing from the ECB. This reached a peak last November, when banks here were in receipt of €136.4 billion in funding. This has gradually been decreasing, though emergency liquidity assistance from the Irish Central Bank has remained at about the €55 billion level.

The most recent figures from the Central Bank show the outflow of deposits in Ireland continued in June, though the rate of decline in deposits stabilised somewhat. Some €9.3 billion left banks this June, according to figures released last month, though this was the smallest decline in almost a year.

Meanwhile, emergency overnight borrowing from the European Central Bank jumped to €4 billion on Wednesday night, on concerns about the health of French banks. However, the bank’s overnight loan facility fell back to €227 million last night, easing fears banks were facing liquidity issues.

Euro zone banking stocks have been among the most volatile this week, pushing up the cost of overnight bank financing, and prompting four EU countries to ban short-selling temporarily.