As Irish ECB Borrowings Surge, The Country's Bank Run Picks Up Speed

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Following the publication of the monthly Central Bank of Ireland flow statistics for November, that the country's bank ended up borrowing another massive amount of capital from both Europe and the central bank itself, should not be surprising. After all it was in November that Ireland followed Greece into the insolvency abyss, a place where none other than Olli Rehn guarded the gates to feudal hell. However, one much more troubling factor is that the depositor run from Irish banks, a development which many have cited as potentially being the catalyst for the next major step down in the European house of cards tumble, is accelerating. From the report: "Deposits from the Irish resident private sector were 6.7 per cent lower on a year-to-year basis in November 2010. The annual rate of change in deposits from Irish households was minus 4.5 per cent, whereas deposits from Irish NFCs fell by 14.9 per cent on an annual basis in November." What this means simply said, is that as more deposit capital is withdrawn from Irish banks, the more they will need to rely on ECB and ICB funding, the more distressed they will be perceived as, the more capital will be withdrawn and so on... But that is a 2011 story.

From Reuters:

The European Central Bank lent banks in Ireland, including foreign lenders, 138.2 billion in November, an increase on the 136 billion euros Ireland's central bank said lenders had received up to November 26.

Domestic banks accounted for 97.3 billion euros of the total, a rise of 13.7 percent during a month that ended with Ireland securing an 85 billion euro IMF/EU bailout, the central bank said in a statement on Thursday.

However, as every financial transaction in Europe has a secondary central bank intermediary, the realy bulk of money actually came from the Irish Central Bank (which in turn had also borrowed from the ECB):

On top of the ECB funding, Ireland's central bank had lent the country's banks nearly 45 billion euros in exceptional liquidity assistance by November 26, a 10 billion euro increase on the previous month. No update was provided for this figure.

Before one dismisses these amounts, keep in mind that Irish GDP is about $170 billion (assuming one can believe any such numbers out of Europe)...

Yet lending is easy: all the ECB would need to do is get Germany to finally agree to print some more paper: if Merkel is uncomfortable with this process, she can merely retain the services of one Brian Sack: he will be sure to explain all the nuances. What is far more difficult is to convince people that their deposits in the banking system are safe. And that's where Ireland is failing:

Deposits from the Irish resident private sector were 6.7 percent lower on a year-to-year basis in November, separate figures showed.

Allied Irish Banks (ALBK.I), which Ireland effectively nationalised last week, said last month that it had lost 13 billion euros in deposits since the end of June.

Larger rival Bank of Ireland (BKIR.I) shed 10 billion euros of deposits in the third quarter while bancassurer Irish Life & Permanent (IPM.I) said it had suffered a 600 million outflow in the same period.

Some 35 billion euros of the 85 billion euro bailout will be channelled to the country's banks. Around 10 billion euros will be used for immediate capital injections, and a further 25 billion be kept as a back-up in case further injections are needed.

Details directly from the Bank report:

  • Deposits from the Irish resident private sector were 6.7 per cent lower on a year-to-year basis in November 2010. The annual rate of change in deposits from Irish households was minus 4.5 per cent, whereas deposits from Irish NFCs fell by 14.9 per cent on an annual basis in November. Deposits from OFIs and insurance corporations and pension funds (ICPFs) declined by 4.3 per cent over the period.
  • There was a negative net monthly flow of Irish resident private-sector deposits during November totalling €5.2 billion, bringing the three-month average net flow to minus €2.1 billion. This is in comparison to an average net monthly flow of Irish resident private-sector deposits of minus €677 million in the three months ending October 2010. The negative net monthly flow of Irish private-sector deposits in November was primarily due to a fall in household and OFI/ICPF deposits.
  • Developments in overnight private-sector deposits have remained volatile. The net monthly flow of overnight deposits averaged minus €479 million in the three months ending November 2010, compared with €987 million over the three months ending October 2010. During November, overnight deposits from households fell by €504 million, which is likely due in part to seasonal factors as it is a common occurrence in November in previous years. Almost the entire decline in OFI deposits during the month was in the overnight category. Total overnight deposits from the Irish private sector were 5.3 per cent lower on an annual basis in November 2010.

And just in case anyone is wondering what the source of all the capital is that is pushing the EURCHF to fresh all time highs day after day, not to mention spreads of PIIGS CDS closing 2010 at near all time wides, please refer to the chart above.

h/t Ciaran