Central Bank Support for Irish Banks

Économiste Monétaire

... seems to be increasing. According to the media,

Irish banks borrow E119bn from the ECB wrote:

Irish based banks and other financial institutions raised their borrowings from the European Central Bank by 25pc in just under a month to a total of E119.1 billion, the Central Bank said today.

The ECB funding reliance by Irish-based lenders including international and domestic companies in Ireland rose to the E119.1 billion level at the end of September from E95.1 billion at the end of August.

Irish banks are still blocked off from inter-bank lending and rely mostly on the ECB's funds for their capital needs.

Not a good sign, especially when EONIA rates are so low, yet banks are using the marginal lending facility. Below is a graph showing Irish CB lending over time:



It's interesting to compare this with the aggregate balance sheet of domestic credit institutions (Excel), which shows €60bn in liabilities for Irish banks ('Borrowing from the Eurosystem relating to monetary policy operations') compared with €95bn in CB lending for August. It would be nice to have a section just for the 'guaranteed institutions', and I wonder which foreign banks are borrowing through the Irish CB to make up that €35bn gap. (Below is a list of banks that appear on the 'aggregate balance ...'.)

ACC Bank Plc
AIB Mortgage Bank
Allied Irish Banks Plc
Anglo Irish Bank Corporation Plc
Anglo Irish Mortgage Bank
Bank Of Ireland Mortgage Bank
Bank Of Scotland (Ireland) Ltd
Barclays Bank Ireland Plc
Danske Branch AS
EBS Building Society
EBS Mortgage Finance
ICS Building Society
Investec Bank (UK) Limited
Irish Life & Permanent Plc
Irish Nationwide Building Society
KBC Bank Ireland Plc
Northern Rock Plc
Postbank Ireland Limited
Rabobank Nederland
The Governor & Company Of The Bank Of Ireland
Ulster Bank Ireland Limited
Credit Unions As Regulated By The Registrar Of Credit Unions

Slippers 2

Irish banks are still blocked off from inter-bank lending and rely mostly on the ECB's funds for their capital needs.

How does borrowing increase capital? Isn't capital just a figure for assets minus liabilities, which would both go up if the bank borrowed?

Économiste Monétaire

It doesn't increase capital, unless you want to consider retained earnings arising from the profitable use of those borrowings. I agree with your point, the author should have said '... for their short-term financing needs'. You'll learn to ignore the silly errors of Irish journalists for the sake of your sanity; if I hear one more person say 'we have half a million unemployed' I will kill someone...

Slippers 2

One of my lecturers this year is Karl Whelan and near the start of the course he was lamenting fuzzy journalism and said something to the effect that if anyone so much as hints in the final exam that they don't understand the difference between liquidity and solvency by using the phrase "capital reserves" they will be severely marked down.

noodler

Économiste Monétaire wrote: »

if I hear one more person say 'we have half a million unemployed' I will kill someone...

You'd be surprised how often I have to make that differentiation for people on a daily basis...

Économiste Monétaire

We should probably have a thread on journo gaffes, might overload the site though :pac:.

By coincidence, Karl has written something on this topic too:

http://www.irisheconomy.ie/index.php/2010/10/10/the-irish-banks-and-the-ecb/