Figures released by the Central Bank of Ireland (CBI) today show that in the month of May 2012, the reliance by Irish banks on central bank funding fell after what seems like a blip in April 2012, where against trend, reliance increased*. Lending by central banks to Irish banks comprises lending directly from the ECB and lending from the CBI. In total overall lending has reduced by €2.2bn in May 2012 from €128.2bn to €126bn. Lending directly from the ECB fell by €2.3bn in the month of May 2012, from €86.8bn to €84.5bn. Lending from the CBI to Irish banks, which is mostly known as “Emergency Liquidity Assistance” or ELA rose marginally by €0.1bn, from €41.4bn to €41.5bn.
What does this mean for Irish banking and the wider economy? If our banks are to return to some degree of normality, they will rely more on deposits from customers and lending from other banks. So today’s figures indicate – though don’t absolutely prove – that deposits and inter-bank lending are increasing which suggests an improvement in confidence and good news. Overall the trend in Irish banks appears to have been positive for the past 11 months, with deposits stabilising and growing slightly whilst reliance on the ECB has declined. This is positive news, particularly given the jitters in other EuroZone countries, such as Spain, Greece and Italy.
It is worth pointing out that ECB direct lending to Irish banks today stands at €85bn. This compares with a €3tn ECB balance sheet, and indicates that Irish financing arrangements are now proportional to our economy, and that the ECB is no longer providing “unprecedented” support to Irish banks.
We will get deposit information on Irish banks for May 2012, at the end of June. Deposit analysis for Irish banks for April 2012 is available here.
*The figures published at the top of this blogpost should a decline in central bank funding in April 2012 but this is due to the CBI separating out ELA from its “Other Assets” heading, and it seems that there were €2.3bn of “Other Assets” that were unrelated to funding the domestic banks. So although the figures show a decline in April of €1.9bn, of this €2.2bn is a reclassification and the correct figure is an increase of €0.3bn.
I don’t believe it. I can’t. This set of figures is supposed to suggest that people actually felt more confident about putting their money in Ireland during the events of last month?
I am not able rightly to comprehend the kind of credulity that would support such a conclusion.
There’s another explanation for this. Perhaps the banks are simply paying down the ELA, like the good little debt collection agencies they are. Or perhaps they and the Central Bank are engaged in some creative account-a-mancy to put a brave face on the books.
But the idea that more people put money into Irish banks last month than took it out is not one which can be accepted by anyone without a lot more evidence than 2/3 aggregate numbers from the Central Bank. I doubt it can be accepted at all.
Banks withdrawing credit from the wider economy, I would think
@NWL
I am a little late commenting on this thread but would like to make an observation.
It is generally assumed that a reduction on ECB/ELA liquidity is a ‘good thing’ and it normal circumstances that may be so.
However these times are not normal so that a reduction in ECB/ELA funding may simply indicate that banks are pulling in their loans on the other side of the balance sheet to pay off the ECB/ELA.
In other words if the total balance sheet value is reducing at the same time, a reduction in ECB/ELA merely indicates that the banks are doing a good debt collecting job for the ECB.
And to hell with the Irish economy.
If one could get the total balance sheet figures for the covered banks for each of the periods above, then the ECB/ELA figures could be placed in a more meaningful context.