Central Bank of Ireland data shows emergency liquidity stays flat in January but banks use another ruse to replace fleeing deposits

There are many questions hanging over the health of our banking sector at present; solvency issues stemming from bad loans and derivative exposures, liquidity issues as funding markets appear closed to the Irish banking sector and there is an ongoing deposit flight, reliance on the ECB and Central Bank of Ireland (CBI) for emergency and extraordinary support measures. Today sees the release of data by the CBI covering the period to the end of January 2011. Table A2 on the CBI’s website has not yet been updated (UPDATE: the table has now been uploaded and is available here). Nor is there a press release. But RTE is carrying the story.

Probably to the fore of the general public’s concerns is whether “deposit flight” is continuing or has stabilised following the intervention of the EU/IMF in November. Alas these figures today don’t provide direct answers, we need wait to the end of February 2011 for deposit data for January 2011 (and even then, the most granular data will relate to the 20 domestic financial institutions but many people really want to know what’s happening with the six “domestic” institutions – AIB, Anglo, Bank of Ireland, EBS and INBS)

But what the information provided today does tell us is that the CBI’s emergency liquidity assistance is flat at €51.1bn, exactly equal to the record high ELA in December 2010 if you believe RTE’s reporting. On the face of it this would mean some stability in banks’ reliance on the CBI to fund operations in the context of fleeing deposits. Alas, it seems that alternative funding has in fact increased by €14bn with banks “self-issuing” debt to themselves and converting it to liquidity at the ECB. Laura Noonan reports in today’s Irish Independent that two Barclays Capital (it being one of the troika presently stress-testing Irish banks along with the Boston Consulting Group and Blackshore) analysts “Laurent Fransolet and Guiseppe Maraffino say the fall [in CBI ELA, there was in fact no fall but the analysts gave their opinion in advance of the release of the CBI data] was achieved because Irish banks were able to issue €14bn of short-dated government guarantee bonds in late January”

Add the €14bn to the reported CBI ELA today and we are still back in new-record-breaking territory which would seem to indicate that funding issues have not gone away.

Also reported today is the total of special liquidity operations from the ECB in Irish banks (in this context “Irish” means the 430-odd financial institutions in Ireland’s “Liechtenstein by the Liffey”, the IFSC plus the 20 institutions that service the domestic economy (post office, credit union, NAMA banks, State-guaranteed banks, foreign owned subsidiaries like Ulster Bank, KBC, Rabo and others). The total at the end of January 2011 was €126bn, compared with €132bn in December 2010.

Overall therefore it seems that Irish banks’ reliance on ECB, CBI and self-issued debt has increased to €191.1bn at the end of January 2011 compared to €183.1bn at the end of December, 2010. Here are the numbers (they may be updated if the CBI formally update their website later today – the second Friday of the month is supposed to be the day when Table A2 gets updated)

UPDATE: 13th February, 2011. The €14bn of self-issuance might not need be added to the extraordinary liquidity figures as it may be the case that it will simply reduce CBI ELA by €14bn and increase ECB lending by €14bn. The self-issuance took place on the cusp of the month end reporting line. So it may be the case that ECB + CBI lending to Irish banks will have reduced by €6bn in January, 2011. The situation should become clearer with the release of the February, 2011 data next month.