the bank run continues...

ei.sdraob

Two articles today based on latest central bank data worth reading (graphs included for the speedreaders)

http://namawinelake.wordpress.com/2011/04/29/new-central-bank-of-ireland-figures-show-no-slow-down-in-deposit-flight/

http://economic-incentives.blogspot.com/2011/04/deposits-in-covered-banks-continue-to.html

Deposits continue to leave the country for the 9th month straight .

Seems like there is no confidence in the system and people are voting with their wallets.

So what will the banks and government do about this (or should for that matter)? is there anything they can do to restore "confidence"? Interesting how past measures taken in the name of "keeping the ATMs going" (Guarantee, endless direct bank support and then the "bailout") not only are not working but have led to what they where mean to stop.

What will the new government (which promised "not another red cent to the banks") do when these banks come calling back for a topup.

sarumite

Are they leaving the country or just the banks?

My savings account which had a small but significant amount is leaving the banks at a slow but steady rate as I need the money just to get by. I imagine I am not the only person. As such the banks which would have seen a steady increase in my deposits over the years has seen a steady decline over the last 7-8 months.

ei.sdraob

There are several movements taking place but overall yes money is leaving covered and non-covered and IFSC banks

• movement from Covered to non Covered banks (says alot about the trust in the guarantee and the Irish banks themselves!)
• financial institutions exiting quickly and quite recently too (despite the claims of one of the members in a recent thread that this happened early in the crisis)
• rapid movement in non EU depositors

RTE also have an article now At a time when we are being told people are saving more, where are these savings going if they are surely not going into Irish banks? Also more disturbingly credit is also falling.

edit: the above article also mentions that Domestic banks are being supported by 82 billion by the Irish Central Bank! when the hell did this go up so quickly?

ardmacha

RTE also have an article now At a time when we are being told people are saving more, where are these savings going if they are surely not going into Irish banks? Also more disturbingly credit is also falling.

"Savings" means not spent. Many people are using money to pay off loans and proper order too. If people pay off loans from Irish banks than this is even better than a deposit.

ei.sdraob

ardmacha wrote: »

"Savings" means not spent. Many people are using money to pay off loans and proper order too. If people pay off loans from Irish banks than this is even better than a deposit.

Good point

z0oT

ei.sdraob wrote: »

edit: the above article also mentions that Domestic banks are being supported by 82 billion by the Irish Central Bank! when the hell did this go up so quickly?

There was an argument doing the rounds to have those involved those involved with the central bank loans to our banks partake in a debt for equity swap, rather than the whole "Burn the Bondholders" job. The idea was that if this was done, our banks would be among the best capitalized banks in the world, and deposits would come flowing back in again. Then one could leave them return to profitability and sell them off after again after that.

Now I'm not an economist but this to me at least, sounds feasable. Of course to get the ECB to agree to such a venture would be another matter entirely.

Voltex

ardmacha wrote: »

"Savings" means not spent. Many people are using money to pay off loans and proper order too. If people pay off loans from Irish banks than this is even better than a deposit.

I have a feeling that there could be a similar effect in Ireland as was noted in the UK..that people are paying down loans, credit cards, and paying mortgage capital at record rates.
Sure even in our house, when our son leaves the child care to start school in Sept, that we will use the "extra" free'd up cash to pay off capital on the mortgage. You wont miss want you donrt have sort of thing.

Anonymous1987

ardmacha wrote: »

"Savings" means not spent. Many people are using money to pay off loans and proper order too. If people pay off loans from Irish banks than this is even better than a deposit.

Perhaps, the bulk of the deposits are being removed by Monetary Financial Institutions though.

dan_d

Are these figures based on data gathered before the stress tests a couple of weeks ago? It was after those stress tests that the flow of money out was alleged to slow, and they were only a few weeks ago.

Scofflaw

dan_d wrote: »

Are these figures based on data gathered before the stress tests a couple of weeks ago? It was after those stress tests that the flow of money out was alleged to slow, and they were only a few weeks ago.

The figures can at most go up to the end of March, given that the source for them is the Central Bank, who have only released figures to that date at this stage. They don't include the post-stress test period.

Most of the movement in and out of the Irish covered banks seems to be related to the Guarantee:



Covered Banks Deposits Oct 2007 - March 2011, €millions.

It's interesting, in the light of other discussions, that there is no sign at all in deposit terms of any concerns about the Irish banks in September 2008.

cordially,
Scofflaw

dan_d

What do you mean by your last statement Scofflaw?

Scofflaw

dan_d wrote: »

What do you mean by your last statement Scofflaw?

Discussions around the creation of the blanket Guarantee revolve around the dangers of a collapse in confidence in the covered institutions at that point. That there isn't so much as a wobble in the upward trend of deposits suggests that the Guarantee was highly credible (or unnecessary) from that point of view.

Of course, it also barely interrupted the downward movement in bonds - the Guarantee is the red line there:



cordially,
Scofflaw

ei.sdraob

following article puts the blame squarely on the ECB for the bank run

The ECB's actions prompted a lot of commentary last week but it is fairly clear what happened. During last summer, the ECB had about €90bn in loans outstanding to Irish banks and this frustrated efforts to tighten monetary conditions, especially in light of a new ECB mandate to buy bonds of distressed countries. Deposits at domestic banks were slowly declining but deposits in offshore Irish banks were actually increasing.

But a sudden run on deposits began in September and €135bn was gone by November. Lorenzo Bini Smaghi of the ECB claims that this was caused by delays in dealing with domestic banks and by eroding confidence in the government guarantee. But these elements affect domestic banks only and the bank run affected domestic and offshore banks.

Offshore banks are not dependent on the Government for support. Both domestic and offshore banks depend on the ECB, however, and the bank run points to a common cause -- the threatened removal of ECB support.

Then, the ECB had to very significantly increase its support to Irish banks as a result of a run that it itself precipitated. An IMF programme was suddenly inevitable.

View

ei.sdraob wrote: »

following article puts the blame squarely on the ECB for the bank run

Unless, the ECB was providing support to offshore Irish banks (but the government wasn't), that claim would seem to be a bit strange. Was it?

ei.sdraob

View wrote: »

Unless, the ECB was providing support to offshore Irish banks (but the government wasn't), that claim would seem to be a bit strange. Was it?

Hes referring to the banks in the IFSC

there has been declines in both Irish Covered and Irish nonCovered and IFSC lot
as seen in graphs earlier

Scofflaw

Kind of ignores the fact that the fall in bank deposits took place just before and after the expiry of the Guarantee, and that much of that fall was deposits that had come in since the Guarantee. And then we had an IMF bailout, of course. Still, I'm sure those had no impact, or the author of the article was careful to distinguish and eliminate their possible effects?

amused,
Scofflaw

gigino

ei.sdraob wrote: »

Deposits continue to leave the country for the 9th month straight .

Seems like there is no confidence in the system and people are voting with their wallets.

Its not surprising. A lot of people, many tens of thousands, trusted the government and invested ( usually by taking out part-loans etc ) in section 23 / 27 property, in order to raise the quality of the housing rented stock in the country + generate employment ( from the govt point of view ) and in order to provide a future pension or investment return.

These same people , after half the money went to the government, have seen the value of their "investment" drop by up to 70%...and the government then adds further pain by introducing additional property taxes, changing tax rules etc.

No wonder what few bob people have left is leaving the country. People were foolish to invest it here in the first place. Even the public servants who get their 18 month finishing salary lump sum " gratuity" on retirement are investing it abroad rather than buying a couple of apartments here with it....which can be bought brand new for 40k in parts of the country.
Check out who owns half of the golfing villas in Spain and Portugal.
What a crazy country.

OnTheQT

Its mainly ratings sensitive deposits that have left irish institutions. We're now below theyre investment grade