Following on from new Minister for Finance, Michael Noonan’s puzzlingly ambiguous reassurance about deposits at AIB and Bank of Ireland since last week’s stress test and restructuring announcements, numbers released by the Central Bank of Ireland (CBI) later today are set to give a steer on changes to deposit levels in March 2011. We will need root out the deerstalker and meerschaum though, because the data will not show new deposit levels, merely the amount of support to the Irish banking sector from the ECB and CBI, but this should be indicative of funding sources and therefore of deposit movement.
Unfortunately the data will be for the period ending 31st March, 2011 and will therefore exclude the aftermath of the presentations on the stress tests and bank restructuring, given by governor of the CBI, Patrick Honohan and separately the Minister, to the Dail – both were delivered after the markets closed on 31st March. We will need to wait for the second week in May at the earliest to officially find out from scheduled releases how ECB and CBI funding reacted to the announcements.
So what today’s publication will show will be the extent of ECB and CBI support to the total Irish banking sector, including foreign banks that don’t service the domestic economy. This funding has been at an elevated level since September 2008 but has been at more than €150bn combined since last September 2010. There seems to have been a trend in recent months whereby CBI support has increased whilst ECB exposure has reduced. This entry will be updated later today and I leave you with the recent history of ECB and CBI funding.
UPDATE: 8th April, 2011. The latest release from the CBI is now available here. In brief it shows that to the 25th March 2011, both ECB and CBI funding of Irish banks had dropped by €2.4bn and €3.3bn respectively. Total central bank support to all Irish banks stood at €181.3bn at the 25th March. On the face of it, this shows an easing in funding pressures on Irish banks but I wonder if the AIB receipt of €3.2bn in respect of its disposal of Polish operation Bank Zachodni might have made it into the March numbers. Also it is still unclear how the €7bn deposit in February 2011 from outgoing Minister Lenihan might have affected figures.
NAMA Wine Lake 
The March figures are perhaps a bit of an anti-climax given all the good stuff has taken place from March 31st onwards.
Would you expect April’s figures to show a shift away from the ELG Banks’ relaince on the more costly CBI ELA Funding to the cheaper ECB Funding now that the restrictions on collateral have been lifted?
Hi Rob, you are right to say that the period of most interest is that period in the aftermath of the stress tests and restructuring announcements and the publication from the CBI today doesn’t help us in this regard. We’ll need wait until mid May 2011 for the earliest scheduled announcements.
If and when confidence returns to Irish banks I would expect a “wall of cash” to flow into Irish banks because we must now be one of the most poked, examined, stress-tested, regulated (1200 staff now at our Central Bank) banking sectors in the world with intense oversight domestically not to mention from our creditors in the EU and IMF. Add to this regulation the fact that Irish banks offer better deposit interest rates than those in Germany or Switzerland and sure you’d have to be crazy not to put your deposits into Irish banks. When confidence returns.
When will confidence return? As the briefing note from the Secretary General of the Department of Finance, Kevin Cardiff to incoming Minister for Finance, Michael Noonan said, the primary consideration with all policy now is to instil domestic confidence. Minister Noonan delivered an ambiguous speech about deposit behaviour since last Thursday but he intended it to be upbeat and at a minimum he seems to have been saying that the pace of deposit flight had moderated since last Thursday.
So what will happen in April? I would think that deposits will still reduce but at a more moderate rate whilst we all size up the stress test results and “two pillar” strategy. There may be some shocks ahead. Did you know that the Department of Finance has declined to provide a date for the recapitalisation of the banks? Bondholders are still a hot issue, even if the ECB would prefer it otherwise. I’m not sure we’ll get an interest rate reduction this weekend by the way. And beyond our shores, I think the problems in Spain are understated. From a property perspective, I cannot believe the official property indices in Spain. I know the south coast of Spain and if that area is representative then the indices are just rubbish which means that Spanish banks have much bigger problems.
Ok so you won’t speculate.
I wager the CBI ELA in Aprill will fall because the Irish banks will be able to use ‘crappier’ assets as collateral to borrow from the ECB at 1% (or os it 1.25% now?).
When you say DoF refused to set a date, do you mean they haven’t mentioned it or they told you so in a personal query? Not overl concerned there If I am honest, Anglos hasn’t actually been given 30bn yet but we don’t doubt the commitment anymore.
@Rob, no I’m happy to speculate. I think CBI ELA and ECB funding will tend to reduce in the coming months with State injections of capital (the €24bn) and deleveraging (sales of operating units and loan portfolios) but I think deposit outflows will continue for the immediate future despite Minister Noonan’s curiously equivocal words. Will
([state injections] + [deleveraging]) > deposit outflows?
I would think so, yes, but it will depend on the timing of state injections. In response to your question about the timing of the injections, I am relying on press reporting (Laura Noonan at the Independent, mostly).
So my speculation is that deposit outflows will continue in net terms for the next few months, but that state injections and deleveraging will exceed deposit outflows and that banks will therefore need to rely LESS on ECB and CBI funding. So the €180bn CBI and ECB liquidity funding might fall to €175bn in April and €165bn in May AND that ECB funding may fall slower than CBI funding for the reason you mention, the easing of eligibility rules – there, is that speculation enough?!
Lorcan has some good analysis here:
http://blog.cornerturned.com/2011/04/08/irish-central-bank-ela-small-drop/
I bet the stats do not include the 7,000,000,000 EUR deposit in March.
Excellent speculation.
Ciaran, I note those DoF notes to mentione the 7bn was deposited by the Minister (as suspected) in anticipation of the psotponed recaps.
The source is still a mystery but personally I think it is simply borrowed from the 18bn we took from the troika so far.