Banks used extra €10bn funding last month

IRISH BANKS tapped an additional €10 billion from the Irish Central Bank’s emergency liquidity funding in the four weeks to November 26th, the period which saw Ireland request the EU-IMF rescue package.

Figures from the Central Bank show domestic and foreign-owned banks in Ireland had €44 billion in “other assets” on their balance sheets on November 26th, the majority of which is believed to comprise emergency lending assistance from the Central Bank.

This compares to a figure of €34.6 billion on October 29th, representing an increase of 29 per cent. Irish banks also increased their reliance on funding from the European Central Bank (ECB) during this period, though the increase was less dramatic.

Irish banks had €136.4 billion of ECB money on their balance sheet on November 26th. This compares to a total of €130 billion a month earlier.

Irish financial institutions held €78.6 billion in loans from the ECB on November 27th, 2009, a figure that has since risen by almost 75 per cent.

ECB concern about the level of financial support it had been providing to Irish banks was one of the main triggers for the Irish EU-IMF bailout, which was officially requested by the Government on November 21st.

It is believed concern was also raised by Europe in mid-November at the level of emergency lending assistance that the Irish Central Bank was providing to Irish banks.

While both the ECB and the Irish Central Bank’s lending to Irish banks is collateralised against the banks’ loans, in general, under the emergency lending assistance, the Irish Central Bank accepts riskier loans than would not be accepted by the ECB as collateral, such as the assets of Anglo Irish Bank.

The 29 per cent increase in the dependence on the “other assets” class of funding by Irish banks in yesterday’s figures indicates that Irish banks may be relying more on funding that is guaranteed against riskier capital.

The withdrawal of deposits from Irish banks over the last two years is one of the main reasons behind the banks’ increasing reliance on ECB and Irish Central Bank funding.

According to Jim Ryan of Glas Securities, market funding will not recommence until the restructuring plans of the banks become clearer. “The best one can hope for in 2010 is to stop deposit outflows and then in 2011, when matters become clearer, we should start to see some inflows again.”