Irish Banks Funding Issues

noodler

Speculation is mounting that we could tap the EFSF for our banks rather than our explicit sovereign needs but what exactly is the banks' problem?

1) They have an ELG scheme don't they? Is the insinuation that they are still having trouble attracting money abroad even when the Gov is guaranteeing it?

2) They also have emergency liquidity support from the ECB (as well as loans for NAMA bonds).

Is it implicit that 1) is no longer making loans viable at a sustainable rate and that the ECB are getting sick of 2)?

Économiste Monétaire

The solvency of the state affects the believability of such a guarantee, most likely. Banks also need to provide appropriate securities as collateral to borrow from the Eurosystem, which isn't an issue for unsecured interbank lending. If the majority of your assets are in loans (that aren't securitised and highly rated) then you might run out of things you can use as collateral pretty quickly.

Slippers 2

Does the Central Bank ask for the same collateral as the ECB? Last month the Central Bank's other assets went up by €13bn. Does this mean that the CB is lending to Irish banks because they can't get as much as they need from the ECB and the CB has lower standards? How much of this sort of lending is the CB allowed to do?

www.centralbank.ie/data/site/cmbs/ie_table_a.2_financial_statement_of_the_central_bank_of_ireland.xls

Économiste Monétaire

Slippers 2 wrote: »

Does the Central Bank ask for the same collateral as the ECB? Last month the Central Bank's other assets went up by €13bn. Does this mean that the CB is lending to Irish banks because they can't get as much as they need from the ECB and the CB has lower standards? How much of this sort of lending is the CB allowed to do?

www.centralbank.ie/data/site/cmbs/ie_table_a.2_financial_statement_of_the_central_bank_of_ireland.xls

All Eurosystem CBs should have the same collateral standards when conducting MROs/LTROs, because the collateral list is centralised at the ECB; the reason for this being, in the event of default, the constituent central bank doesn't bear all of the loss, rather it's absorbed by all CBs (from an ECB fund of surplus income). This list is only for marketable assets, though, and there's some wriggle room for non-marketable assets, e.g., retail mortgage backed promissory notes, which will be accepted but have to be rated, as far as I am aware.

The quality of the assets behind the master loan repo agreements made between the Irish CB and Anglo (plus whomever else) is unknown. How much they can lend through these agreements, I don't know.

thebman

The problem with providing a loan to our banks rather than the nation is they will/could just buy our bonds with the money they get and come back for more.

The money must be lent to Ireland to give to the banks or else the banks will skew our bond rates further adding to the political mind games.

I believe that is the fear among those funding the loan/bailout anyway.

Hasschu

It appears to me that the gov't is making strenous efforts to ring fence the state. The European Commission is insisting that the bail out funds flow through the Irish Gov't from the ECB/IMF. The Irish Gov't is adamantly refusing to accept funds and wants the European Commission and the ECB/IMF to deal with the Irish banks directly. You could call this gambit cute hoorism or abdication of responsibility. Reality is for people who cannot face up to booze, and clearly our politicians can. I can see the gov't seceding from the Euro Zone in a fit of pique after a 3 a.m. session.