Figures released by the Central Bank of Ireland (CBI) today show that in the month of July 2012, the reliance by Irish banks on central bank funding declined by an impressive €5.4bn or 4% 1% bringing us back to levels last seen in August/September 2010. Lending by central banks to Irish banks comprises lending directly from the ECB and lending from the CBI. In total overall lending has fell by €5.4bn from €127.0bn in June 2012 to €121.6bn in July 2012.
Lending directly from the ECB fell by €4.6bn in the month of July 2012 – from €84.6bn in June 2012 to €80.0bn. Lending from the CBI to Irish banks, which is mostly known as “Emergency Liquidity Assistance” or ELA fell by €0.8bn, from €42.4bn to €41.6bn.
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. Against the backdrop of a raging EuroZone banking crisis, the figures are particularly welcome, and it would still appear that the trend overall in Irish banks appears to have been positive for the past 12 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 €80.0bn. 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 July 2012, at the end of August. Deposit analysis for Irish banks for June 2012 is available here.
Why don’t I believe these Irish Central Bank figures? Maybe because I am reading too many articles like these.
The following is an except from an article by DK Matai founder of
ATCA: The Asymmetric Threats Contingency Alliance
How Big Is the Eurozone ‘Flight-of-Capital’?
“The amounts involved in the flight of capital from the Eurozone are truly substantial. Silent bank runs are now happening within the eurozone. Up until a few months ago, they were relatively slow and prolonged. In recent months, they have shown signs of accelerating sharply, in a way which demands an urgent response from policy-makers, but nothing substantial is forthcoming. For example, Spain has already suffered 41.3 billion euros of capital flight in May alone, or a total of 163 billion euros in the first half, equivalent to about 16 per cent of its GDP. It is estimated that the Eurozone’s total outflow over the coming two years could be between 750 billion and 1.25 trillion US dollars equivalent per annum. Total bank deposits in the Eurozone add up to around 7.6 trillion euros, including 5.9 trillion euros belonging to households. The Eurozone’s peripheral countries, which are the most susceptible to capital flight, have 1.8 trillion euros in household deposits. There are three significant trends to note in regard to the flight of capital from the Eurozone:
1. Foreigners are moving their money out of Eurozone countries because for them even a small risk of devaluation of the euro or sovereign default is not worth taking;
2. Local depositors are moving their money out of more vulnerable Eurozone banks to bigger and stronger banks as well as foreign banks to safeguard against the potential collapse of some banks; and
3. Locals are also moving their money abroad, often from the local branch of a Eurozone bank to an overseas bank outside the Eurozone to stem the extent of their potential losses in the event of a devaluation of the euro.”