Deposit flight continues unabated in December 2010, ECB data reveals

I see that it will be next Tuesday 1^st February, 2011 when the Central Bank of Ireland releases its data for December 2010 which will show how deposits fared since the announcement of the IMF/EU bailout at the end of November, 2010.

For those of you expecting a massive inflow of deposits in December as euro deposit holders finally found religion and became confident enough to leave their money in highly regulated, stress-tested on a ferocious scale, high interest paying Irish banks will be disappointed to see that data released by the ECB yesterday showed that deposits fell €6.8bn in December (compared with a fall of €5.9bn in November). So the rate of flight which was already at an elevated level increased. The ECB does not break its figures down between the five NAMA Participating Institutions (AIB, Anglo, BoI, EBS and INBS), the six State-guaranteed institutions (the five NAMA PIs and Irish Life and Permanent) or the 20 domestic institutions (including An Post, the credit unions and foreign banks providing domestic banking services) – we do know that it excludes the 430-odd IFSC companies (MFIs) who had an additional €459.2bn on deposit. So we don’t know if an internal flight from the six “Irish” banks to local foreign subsidiaries is ongoing as anecdotally suggested – I’d be willing to bet it was.

For information, the deposits in the 20-institution-strong domestic Irish banking system totalled €201.1bn at the end of December 2010 compared with €207.9bn at the end of November, 2010 and €213.8bn at the end of October, 2010.

Of course it is emergency assistance from the CBI and ECB which is replacing these lost deposits and we would hope to get a better picture on Tuesday next of what has happened to these but we already know CBI emergency liquidity assistance for December 2010 stood at €51.1bn, up €7bn from November. ECB short term funding is less clear though it was suggested two weeks ago that it had fallen by €4bn to €132bn at the end of December compared with the end of November 2010. It seems that there is a maximum of €201bn left in deposits in the Irish banking system. Has the ECB and CBI pockets deep enough to replace these deposits?

UPDATE: 30^th January, 2011. The Irish Examiner confirms the continuing flight of deposits from Irish banks, though to stress the point – we know the loss of deposits from the 20-odd banks that serve the domestic economy was €7bn in December 2010, but it may be that the internal loss from the six State-guaranteed banks has been much more than this (it could theoretically be less but that would be counter to anecdote). The Irish Times reports on the third phenomenon propping up Irish banks (the first two being ECB and Central Bank of Ireland emergency liquidity operations) – the State has just guaranteed the issue of €20bn of euro bonds created by Irish Life and Permanent, AIB, Bank of Ireland and EBS. I must admit that I read the Irish Times article a few times and still don’t know if this is €20bn of new guarantees or merely an exchange of guarantees on foreign currency denominated bonds to euro bonds.  Elsewhere Richard Curran at the Sunday Business Post reports on the unease towards the elevated levels of Emergency Liquidity Assistance (ELA) provided by the CBI (€51bn at the end of December 2010, up some €7bn from the end of November 2010 – will end of January 2011 show a further leap? We’ll find out on 11^th February, 2011 when the CBI publishes some of its statistics for January). Apparently a Citigroup report considers the €1.5bn capital base of the CBI to be at risk with the €51bn ELA exposure being secured by domestic bank assets which the ECB wouldn’t deem acceptable. And finally, Bloomberg report that it is Citigroup’s view that ELA should be added to gross national debt which Bloomberg put at €148bn and which excludes cash on hand at the NTMA. Let’s hope the rating agencies don’t come around to that view – otherwise with S&P’s view, for example, that our national debt should include NAMA bonds, Ireland’s gross debt including ELA would touch the €240bn mark (€148bn gross debt + €40bn NAMA debt + €51bn CBI ELA).

UPDATE: 1^st February, 2011. The Central Bank of Ireland has issued its Money and Banking Statistics report for December 2010 which confirms the continuing decline in deposits but also confirm a welcome reduction as expected in ECB special operations. The chart below shows (1) borrowings by Irish based banks from the Central Bank as part of Eurosystem monetary policy operations (2) borrowings by the 20-odd domestic financial institutions (State-guaranteed, An Post, credit unions, foreign banks which serve the domestic economy) and (3) Emergency Liquidity Assistance provided by the Central Bank of Ireland to the Irish banking system. In overall terms the increase in support from the ECB and CBI in December 2010 was minimal (€0.2bn) but that is likely to disguise the support given to the six State-guaranteed banks. Remember in December, the State shoveled €3.7bn into AIB and €0.5bn into EBS and God knows how much into INBS and Anglo. The deposit outflows confirm the ECB data from last week that deposits fell some €7bn during the month (€3bn Irish residents, €4bn non-Irish)

UPDATE: 2nd February, 2011. It hardly comes as a surprise that S&P has downgraded Ireland’s sovereign debt by yet another notch from A to A- with negative outlook and another review expected in April 2011. S&P say that Ireland is almost entirely dependent on the ECB at present. Well yes and Emergency Liquidity Assistance from the Central Bank of Ireland (to the tune of €51bn at end December 2010 and likely to be several €bn more at the end of Jan 2011 – will be confirmed on 11th February, 2011).  At A- we remain investment grade, for now.

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