Deposit flight from Ireland in December 2010. What are the precise facts?

Although everyone seems to agree that deposits continued to “fly” from banks based in Ireland in December 2010, despite the IMF/EU bailout announced on 28^th November, 2010, there are wide variations in quantifying the flight (AKA bank run). Here are some of the local media headlines to confuse you:

Big fall in deposits last year – figures (RTE) which then reports “the figures also show that private sector deposits – which include deposits from households, businesses, financial institutions and pension funds – dropped 7.6% or €15 billion last year, with deposits from non-financial companies falling more than 16%.”

Irish banks’ foreign deposits fall by €91bn (Irish Times) which then reports “Non-Irish euro zone residents withdrew 39 per cent, or € 10 billion, of their deposits from domestic banks (including Irish and foreign-owned retail banks) over 2010, according to the Central Bank. Meanwhile, deposits from the rest of the world fell 40 per cent, or €81 billion, to €121 billion.”

Banks lose €40bn over a month in deposits flight (Irish Independent) which then reports “an unprecedented €40bn of deposits was withdrawn from Irish banks in December, dwarfing the flight in deposits earlier in 2010.”

Deposits fall €15bn but Central Bank reliance rises (Irish Examiner) which then reports “DEPOSITS held by Irish banks fell by €15 billion to €168.3bn last year, figures released by the Central Bank yesterday reveal.”

And not that it would be in the same league as the above esteemed media outlets:

Deposit flight continues unabated in December 2010, ECB data reveals (namawinelake) which then reports “data released by the ECB yesterday showed that deposits fell €6.8bn in December (compared with a fall of €5.9bn in November)”

So which is it? Deposits fell by €91bn or €15bn in 2010 or by €6.8bn or €40bn in the month of December 2010 alone? How can the figures be so far apart?

Well it really comes down to definitions which get confused in two areas:

(1) The definition of “Irish banks” – There are some 450 financial institutions operating in Ireland. Most are located in the IFSC (“Liechtenstein by the Liffey”) and do not service the Irish domestic economy. About 20 financial institutions which include An Post (post office savings), credit unions, the five NAMA Participating Institutions (AIB, Anglo, Bank of Ireland, EBS and INBS), the six State-guaranteed banks (NAMA PIs plus Irish Life and Permanent), foreign owned banks with local subsidiaries (the main ones would be considered to be KBC, Rabobank, Danske, RBS, Lloyds).

(2) The definition of “deposits” – Deposits may be held by Irish residents (households and businesses), Government, Monetary Financial Institutions (MFIs), Non-Irish Euro residents (households and businesses) and non-Euro residents (households and businesses).

Table 1 shows the deposit position for all 450 Irish financial institutions

Table 2 shows the deposit position for the 20 institutions which serve the domestic economy.

 

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank of Ireland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outside Europe)

So the €15bn annual figure cited by RTE was the private sector decline in the 450 Irish financial institutions. The €91bn annual figure cited by the Irish Times was the decline in Non-resident deposits at the 20-odd domestic institutions. The €40bn monthly figure cited by the Independent was total decline in deposits at all 20-odd domestic institutions. The €7bn monthly decline cited on here doesn’t appear to have a corresponding figure at the CBI  and a query has been submitted to the ECB as to the matching of their claimed €201.1bn on deposit at the end of December with the CBI statement.

Having reconciled the different figures though, the key question is which measure gives the best indication of the overall confidence in our banks? Because we don’t have a breakdown between deposits at the six State-guaranteed institutions and the other 14 institutions serving the local economy, we probably can’t get at the information most people want. But I would suggest that the next best indicator is the private sector deposits held at the 20 domestic institutions which fell by €19bn in 2010 and €3bn in December to leave a year end balance of €157bn.

It will be Friday this week, 11^th February, 2011 when the Central Bank of Ireland first releases statistics in respect of January 2011. The figures will indicate the level of Emergency Liquidity Assistance (€51bn at the end of December 2010 and widely expected to be several billion euros more at the end of January). We will also get an indication of special operations by the ECB who had advanced some  €132bn to Irish banks (including some €94bn to the 20-odd domestic financial institutions) at the end of December, 2010. We will have to wait for another couple of weeks for the first indication of changes to deposits. There is only a finite amount of funding in Irish banks that will need continuing ECB and CBI support for replacement should it “flee”, but at €429bn in the 20 domestic banks, are the ECB/CBI’s pockets deep enough?