Overnight lending to banks under pressure

ashleey

http://blogs.ft.com/money-supply/2010/11/11/is-this-the-irish-trigger/?

If this is true, that AIB etc are struggling to fill the cash machines for tomorrow, then the govt might be forced to the bond market sooner than intended or if not the EFSF.

digme

any chance you could paste it as you need to be registered.

B0X

Can you post the article here? I can't read it.

paddymacsporran

You need to register to read it - Here's the gist of the piece. It's not really just about the cash machines. It's about European investors no longer willing to provide Eire banks with overnight funding.

If true, this could trigger the much-discussed bail-out (for it’s unlikely to end in default). A bail-out might still impose losses on bondholders, though, after recent discussions at the EU.

Until now, Ireland didn’t need any extra funding till mid-2011. Shenanigans in the secondary (resale) bond market were troubling, then, but did not need to affect the country’s cost of debt. Just as long as debt auctions took place once things had calmed down.

That reasoning assumed, however, that the Irish state would not need more cash than it had planned. Overnight funding itself might not be the problem - it is only overnight, after all - but it could trigger a liquidity crunch that sees banks come cap in hand to the government. And the government, at the moment, can ill afford to help them.

Inquitus

Is this the Irish trigger?
November 11, 2010 7:01pm
by Emma Saunders
| Share

Rumour has it that certain European investors are no longer willing to provide Irish banks with overnight funding. If true, this could trigger the much-discussed bail-out (for it’s unlikely to end in default). A bail-out might still impose losses on bondholders, though, after recent discussions at the EU.

Until now, Ireland didn’t need any extra funding till mid-2011. Shenanigans in the secondary (resale) bond market were troubling, then, but did not need to affect the country’s cost of debt. Just as long as debt auctions took place once things had calmed down.

That reasoning assumed, however, that the Irish state would not need more cash than it had planned. Overnight funding itself might not be the problem - it is only overnight, after all - but it could trigger a liquidity crunch that sees banks come cap in hand to the government. And the government, at the moment, can ill afford to help them.

Tags: banks, Ireland, liquidity

November 11, 2010 7:01pm in Europe, bail-outs, banking, eurozone, government debt, liquidity | 2 comments

Paul Mason of newsnight is on this also : Via Twitter http://twitter.com/#!/paulmasonnews
"Do not watch Irish sovereign debt - watch what is happening to funding of Irish banks, says my City source. Am watching."

http://blogs.ft.com/money-supply/2010/11/11/is-this-the-irish-trigger/?

Amhran Nua

Emma Saunders is the editor of Money Supply. Before joining the FT, Emma worked for five years in energy trading and investment banking. Since then she has set up a business, researched for the IPPR and NGOs. She has a PPE degree from Oxford. She is currently studying for the CFA.

This could possibly get awfully messy, I hope Ms Saunders isn't stirring it.

wylo

Does this mean we should all be running to the banks to withdraw?

ashleey

Sorry about the slow reply lads and thanks those that filled in the details. I am posting this from my phone so am working with the mobile version. I know that Brian Lucey has posted to the site to check it's truth. Worth watching

ashleey

It doesn't mean that you aren't guaranteed. What it means is that in order to keep functioning the banks will need a loan. This then will require the govt to head into the bond Market now rather than June next year. That means 9% or efsf now.

Bullseye1

I thought the ECB had been providing liquidity to the banks buy buying their bonds?

Bullseye1

Bullseye1 wrote: »

I thought the ECB had been providing liquidity to the banks buy buying their bonds?

They had been but things seem to be changing.

ashleey

And they may be running out of bonds to exchange. That means issuing new bonds and you can't do that by tomorrow

Seanohea

Is this just speculation? Is there evidence of this, I thought the government had funds for into next year and had funded the banks enough as well?

Cavehill Red

The banks are gangrenous. People don't seem to realise this. Anglo and AIB will keep hoovering up state cash until there's nothing left to give, then they will go pop.

That's been inevitable and all the cash we pour into them only delays the inevitable, while bankrupting the nation to boot.

amacachi

Please don't all run to the damn banks.

ashleey

Correct. It's just the timing that is the question. Hence the worry about overnight funding or 'walking around money' for the banks. Term funding has already been switched off. All this as the govt and ecb would like to wean banks off of the various artificial support schemes. I still struggle to see the master plan that the ecb and/ or eu have behind all this

wylo

too late, I just took out my 12 euro, I know it could cripple the economy but i need that cash for fags.

ashleey

wylo wrote: »

too late, I just took out my 12 euro, I know it could cripple the economy but i need that cash for fags.

That some patriot you are...

In seriousness though, regarding the plan to pay off bondholders, surely the machinations this week bring us all closer to a proper default so that can't really be the plan.

ScouseMouse

Is it reasonable to think that, as every day goes by, its getting safer and safer to take your few quid out of AIB, and put it in Rabbobank or even under your mattress?

ei.sdraob

Wow the **** is really hitting the fan now

there was me starting threads when we hit 6% and default chance was 33% being all worried only to be told its all "ebbs and flows" by the usual suspects who defended NAMA and Anglo here for last year or more

things are deteriorating at breakneck speed now 9% and 44% default risk for the country, AIB is above 62% by now

on brightside ive only 200 euro left in an irish bank moved last lot at start of week

ashleey

I've got seven days left on the thirty day notice period. Fingers crossed

bad2dabone

is PTSB a safe place to have a few bob?

Cavehill Red

Sorry, this post seems to have vanished, so I'm reposting.

ashleey wrote: »

Correct. It's just the timing that is the question. Hence the worry about overnight funding or 'walking around money' for the banks. Term funding has already been switched off. All this as the govt and ecb would like to wean banks off of the various artificial support schemes. I still struggle to see the master plan that the ecb and/ or eu have behind all this

Whatever about a masterplan, the effect is obvious - a transfer of funds from the Irish taxpayer to losing bondholders (big investors like Roman Abramovich and foreign banks).
The EU will not only facilitate this but insist upon it in order to prop up continental banks with exposure to failing Irish ones.
The result is that we're being sacrificed to preserve German bankers and Roman's bank balance.
My paltry savings are long gone from the country. Anyone who still has savings in AIB or BoI here would do well to consider whether they want to leave them there.

Amhran Nua

She mentions this is a "rumour". How do we know she isn't starting the rumour? This isn't breathless gossip down the pub type talking the economy down, this is a comment from an important member of the Financial Times that could have a severely adverse effect on an entire country. I'd take a very dim view if Ms Saunder's comments turn out to be unfounded and/or malicious. As in "civil or criminal charges" dim.

Seanohea

Amhran Nua wrote: »

She mentions this is a "rumour". How do we know she isn't starting the rumour? This isn't breathless gossip down the pub type talking the economy down, this is a comment from an important member of the Financial Times that could have a severely adverse effect on an entire country. I'd take a very dim view if Ms Saunder's comments turn out to be unfounded and/or malicious. As in "civil or criminal charges" dim.

I totally agree, if prominent financial analysts write like this they should be required to back it up with solid facts and information, not rumours, it's very irresponsible.

Inquitus

Seanohea wrote: »

I totally agree, if prominent financial analysts write like this they should be required to back it up with solid facts and information, not rumours, it's very irresponsible.

Its a fckuing blog, exactly where rumours and unfounded opinion should be expressed.

ei.sdraob

Seanohea wrote: »

I totally agree, if prominent financial analysts write like this they should be required to back it up with solid facts and information, not rumours, it's very irresponsible.

I agree.

There was a bank-run of over 30 billion on Greek banks over the course of few weeks while they were at the same %es as us now.

Would they Irish people react the same way as the Greeks?

Cavehill Red

At least we've moved on from 'people talking down the economy should kill themselves' to 'people talking down the economy should be sued in court.'

It's an improvement of sorts.

Amhran Nua

Inquitus wrote: »

Its a fckuing blog, exactly where rumours and unfounded opinion should be expressed.

It's still within the ft.com site, therefore being expressed in her capacity as a Financial Times employee, and rumours have a very real effect in financial circles. You probably won't catch her blogging about her favourite recipe for braised lamb on that blog.

Amhran Nua

Cavehill Red wrote: »

At least we've moved on from 'people talking down the economy should kill themselves' to 'people talking down the economy should be sued in court.'

If those people are influential members of the financial community and are trying to spread an unfounded rumour to the detriment of an entire country, yes there should be sanctions. Its a different story if these rumours are based in reality, as in events that occurred previous to the comment being made.

ashleey

I would imagine she thought it through before she posted, surely?

Even if she didn't are we in this position just because of negative comment?

ei.sdraob

ashleey wrote: »

I would imagine she thought it through before she posted, surely?

Even if she didn't are we in this position just because of negative comment?

Maybe she should have written about imprisonment in the docklands :P

Cavehill Red

Amhran Nua wrote: »

If those people are influential members of the financial community and are trying to spread an unfounded rumour to the detriment of an entire country, yes there should be sanctions. Its a different story if these rumours are based in reality, as in events that occurred previous to the comment being made.

This isn't Alison O'Riordain we're talking about here.
The FT is a very reputable paper and she is a very respected journalist.

You can bet that whatever she's put into the public domain is not only true but isn't half of what she believes is happening but isn't sufficiently confident to commit to print for the very reasons you mention.

Ask yourself this - why would the FT spin a yarn like that without any foundation, risking lawsuits and their reputation?

Amhran Nua

ashleey wrote: »

I would imagine she thought it through before she posted, surely?

Time will no doubt tell.

ashleey wrote: »

Even if she didn't are we in this position just because of negative comment?

Who said we were?

Inquitus

Amhran Nua wrote: »

It's still within the ft.com site, therefore being expressed in her capacity as a Financial Times employee, and rumours have a very real effect in financial circles. You probably won't catch her blogging about her favourite recipe for braised lamb on that blog.

Good job your political party website is dead, we don't need more of the same.

Cavehill Red

Don't like the FT blog?

How about the Guardian main site?

Such high levels will be a concern to other banks trying to trade with AIB and there was speculation tonight that it was becoming harder for Irish banks to obtain overnight funding from rivals.

http://www.guardian.co.uk/world/2010/nov/11/british-banks-hit-irish-financial-crisis

Amhran Nua

Cavehill Red wrote: »

Ask yourself this - why would the FT spin a yarn like that without any foundation, risking lawsuits and their reputation?

As mentioned, time will tell. I'm withholding personal judgement until a fuller picture emerges, but if this was just a kite-flying exercise I'd be looking for some satisfaction.

Inquitus wrote:

Good job your political party website is dead, we don't need more of the same.

One would almost think some people wanted her to be right. Registrations are booming the last few days as well, thanks very much.

ashleey

Sorry, I wasn't trying to be unreasonable I was just trying to suggest the 'no smoke without fire' defence.

Tie this in with those us fund managers on bloomberg tv talking of 60 days cash left and you have a thread

Cavehill Red

Amhran Nua wrote: »

As mentioned, time will tell. I'm withholding personal judgement until a fuller picture emerges, but if this was just a kite-flying exercise I'd be looking for some satisfaction.

Guardian's reporting it too. And the Newsnight guy tweeted it. I'd be fairly certain they're all hearing this from British banking sources, the very people who AIB would be approaching for overnight funds.

Amhran Nua

Cavehill Red wrote: »

Guardian's reporting it too. And the Newsnight guy tweeted it. I'd be fairly certain they're all hearing this from British banking sources, the very people who AIB would be approaching for overnight funds.

If so, fair enough. The Guardian story appeared three hours after her blog post however. I would be very interested to hear the source of these rumours.

Inquitus

Amhran Nua wrote: »

One would almost think some people wanted her to be right. Registrations are booming the last few days as well, thanks very much.

I visited about a week ago and all the forum had to say is its gone to **** since RBurke left and as far as I could gather he hadn't been there for a long time. It also appeared to have no drive, direction or coherent policy.........I was actually disappointed, I thought it might actually have some potential until I saw what a joke it is.

ei.sdraob

The RBS story was around since this morning, as I mentioned few days ago here they are one of the largest bondholders of Irish debt, something like 6 billion. This exposure was reported during their stress tests

Scofflaw

We've already had a rumour that the IMF had been called in, and that did us about 60 basis points of disfavour, despite being entirely based on a misinterpretation of Holohan's remarks.

I'm not sure the "no smoke without fire" defence actually works in the case of financial 'speculations'.

cordially,
Scofflaw

Amhran Nua

Inquitus wrote: »

I visited about a week ago and all the forum had to say is its gone to **** since RBurke left and as far as I could gather he hadn't been there for a long time. It also appeared to have no drive, direction or coherent policy.........I was actually disappointed, I thought it might actually have some potential until I saw what a joke it is.

Its usually the case when someone has to fall back on a comment like that, they have little else to say, your basic ad hominem. The forum is picking up as well after a slight hiatus, and you're quite welcome to join in and have your say. As for policies, we have about thirty pages of them. Meanwhile, I have to wonder why my questioning this admitted rumour has your knickers in a twist.

ei.sdraob wrote: »

The RBS story was around since this morning, as I mentioned few days ago here they are one of the largest bondholders of Irish debt, something like 6 billion. This exposure was reported during their stress tests

Seems to have escaped the attention of Brian Lucey as well, possibly a somewhat different issue?

Seanohea

Surely AIB has funds to last a period of time at least, they're hardly having to operate on a day to day basis to keep cash flow going in the banks, or is this the case?

ashleey

All banks operate in the overnight as they tie up funds to maximise returns. Anything else would be mismanagement.

To Scofflaw, sorry I retract those last comments (sincere)

Regarding Brian Lucey, he has posted on that ft blog and so didn't miss it

southsiderosie

Amhran Nua wrote: »

It's still within the ft.com site, therefore being expressed in her capacity as a Financial Times employee, and rumours have a very real effect in financial circles. You probably won't catch her blogging about her favourite recipe for braised lamb on that blog.

This isn't anything new. The sharks smell blood in the water. Yes rumors have effects, but they are less effective when governments are credible, and Ireland's is not. And for the record, Ireland's economic problems were on the front page of Spain's largest newspaper this morning (which slants left), so this is not just some British banker conspiracy - EVERYONE is worried about Ireland.

As for the FT, Martin Wolf wrote a piece a few weeks ago criticizing the Irish and UK approach to the financial crisis, saying that the cuts were too deep and may kill the economy. When the FT thinks that spending cuts have gone too far, you know there is a problem.

Amhran Nua

southsiderosie wrote: »

And for the record, Ireland's economic problems were on the front page of Spain's largest newspaper this morning (which slants left), so this is not just some British banker conspiracy - EVERYONE is worried about Ireland.

Take a look at some of the posts in the thread, people talking about withdrawing their money from Irish banks - this particular rumour by dint of its source has a bit more credibility and is a lot more specific than a Spanish newspaper.

southsiderosie wrote: »

As for the FT, Martin Wolf wrote a piece a few weeks ago criticizing the Irish and UK approach to the financial crisis, saying that the cuts were too deep and may kill the economy. When the FT thinks that spending cuts have gone too far, you know there is a problem.

I've no clue what he was talking about, we haven't much of an alternative option if we want to have an economy to speak of.

ashleey wrote:

Regarding Brian Lucey, he has posted on that ft blog and so didn't miss it

Timeline:

• Saunders puts up her blog post
• Lucey requests further information about the source or evidence for these admitted rumours
• The Guardian three hours later has a story about much the same thing

ashleey

Good analysis of timeline. The ft are probably on the phone with Brian Lenihan as we speak. He knows law and he's probably using bad language (unusually)

southsiderosie

Amhran Nua wrote: »

Take a look at some of the posts in the thread, people talking about withdrawing their money from Irish banks - this particular rumour by dint of its source has a bit more credibility and is a lot more specific than a Spanish newspaper.

Your posts implied that the FT was trying to drum up something, and that they should be more responsible. My point about the Spanish newspapers was that it's an indication that people across Europe, not just City bankers, woke up this morning and wondered what the hell was going on in Ireland.

Amhran Nua wrote: »

I've no clue what he was talking about, we haven't much of an alternative option if we want to have an economy to speak of.

That Merkel/ECB/Tories shouldn't be pushing so hard for weak economies to make such deep cuts because they may do more harm than good. Ireland was the model a year ago, and now look where we are.

ashleey

I don't think the Tory party are pushing for cuts here. They have enough to worry about