Figures released by the Central Bank of Ireland (CBI) this morning for the month of May 2011 show that the flight of private sector deposits from domestic Irish banks, which had reversed in April 2011 for the first time since October 2010, has resumed. The flight has resumed at a modest pace. Deposits in the six state-guaranteed financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS) were down just €753m from €108,235m to €107,482m; though such deposits are still up €1bn from the low of €106,309m in March 2011. The banking authorities might take some small comfort from the fact that the pace of private sector withdrawals from the covered banks has slowed considerably from the €3-4bn monthly declines that we were seeing earlier this year and late last year.
However the picture generally is still pretty dismal. All deposits (including Private Sector, Govt, Monetary Financial Institutions, and non-Irish resident) at the covered banks are down €26bn in the month to €285bn, the largest monthly drop since last November 2010 and are now down €130bn on a year ago.
It is noteworthy that the Government has €21.2bn on deposit with the covered banks. The NTMA refuses to disclose if it is paid interest on these deposits.
These deposits are presumably the bailout funds earmarked for the bank recapitalization in July 2011. We are paying the IMF/EU 5.8% on this funding which amounts to nearly €4m per day and which is arguably being totally wasted.
Looking at the total Irish banking system there is one curiosity in the May figures – private sector deposits in Irish-based banks that don’t service the Irish economy (those in the IFSC) increased by nearly €8bn.
The CBI and ECB continue to provide substitute funding for Irish banks which replaces this flight of deposits and Irish banks continue to provide extensive State-backed guarantees on deposits.
So, looking at the deposit figures produced by the CBI. First up is the consolidated picture for all banks operating inIreland including those based in the IFSC which do not service the domestic economy.
Next up are the 20 banks which do service the domestic economy and include local subsidiaries of foreign banks like Danske, KBC and Rabobank. There is a list of all banks operating in Ireland here together with a note of the 20 that service the domestic economy.
And lastly the six State-guaranteed financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS)
(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 ofIreland) 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 outsideEurope)
NAMA Wine Lake 
The run down in deposits is interesting at a time when we are saving 12% of our income apparently. To get a real picture of Irish financial institutional health we would really need to see deposits by Irish people in non Irish banks, or at least try and extrapolate this from run down in deposits + the 12% figure.
There is potential for a much higher deposit number I feel, but this will not be realised until the banks are sorted (simplistically – closed and opened again). This is important because as things stand at the moment, the tax payer is eventually on the hook for this money, but it need not be so. A little bit of clarity of thinking and swift decisive action would go a long way. Time to stop batting for Europe and start batting for Ireland!
MFIs (Covered Institutions:)
Aprtil 2011: 105,641
May 2011: 81,912
That is the single biggest monthly drop in that cateogory as far back as the figures go (2003).
Seems consistent in all three categories of banks – so the money actually did leave the country. Maybe some maturing deposits?
Probably intra-group transactions
The intra group transactions explanation for these shifts was confirmed to me by the Central Bank this afternoon.
@Seamus, could you explain what you mean by “intra group transactions” explaining what “shifts”? It would be most helpful if you could illustrate with numbers.
The Central Bank won’t give precise numbers on these but the explanation is that the banks are undertaking transactions between their Irish and non-Irish subsidiaries/branches. The Money, Credit and Banking Statistics only deal with the Irish operations of the banks.
The Central has occasionally released consolidated balance sheets for the covered banks which provides aggregate details on the Irish and non-Irish operations of the banks.
Unfortunately, I don’t think we are in a position to look at this in any more detail giving the numbers that are made available.
Why would anyone keep their money in AIB or Bank of Ireland? You have two banks, effectively bankrupt, still owing billions to debtors and faced with billions in bad loans, which are being propped up by a state which is being bailed out by the IMF, in a failing economy which in danger of leaving the Euro, and regardless in a currency which is turmoil across the continent, and to top it all off both banks are still being run by the same people whose management wrecked them?
Basic question, first things first: Why haven’t the existing management of the banks been cleared out already? The Nyberg report already made it clear that these people are possessed of a “herd mentality”, rendering them entirely unsuitable for rationally managing a bank(I wonder have the affected executives received treatment for this ailment yet?). How can anyone expect someone to deposit their money in BoI or AIB after reading something like that? If the management of the banks were all alcoholics, functioning or otherwise, would we still have the same situation?
Secondly, given that the banks so egregiously mislead the government and the public about the full extent of their losses for so long, how can a depositor be expected to trust what they claim now? These little banks have cried “Solvent” for so long now, even as they received bailout after bailout, that now even if they are solvent, few will believe them.
Finally–and this is really important–in the event of an Irish bank going into receivership, by choice or as a result of external legal action, how far down the scale of creditors will the depositors be? Do they have preferred creditor status? Do their deposits come before the bond holders, subordinated, secured, or otherwise? Do they come before NAMA, or the government, or the ECB? In the US, my understanding is that depositors come first in the payout queue in the event of a bank liquidation, but I don’t beleive that that is yet the case for any Irish bank.
In conclusion, the case for keeping deposits in an Irish bank is not a strong one. Banks are inherently unstable enterprises whose success is built on trust; and it’s very, very hard to trust your money to BoI or AIB right now.
Can you elaborate on is defined by “service the Irish economy”? I would think that securing people’s deposits is a service of some kind, and importantly one which the major Irish banks seem currently unable to perform.
correct me if i am wrong, but some portion of the funds made available by the troika through the bail out was intended to recapitalize the banks, so that they would then suddenly become strong, well capitalized institutions capable of funding themselves in the market and attracting depositors?
am i right?
if so, then why have these funds not been injected yet?
why are they currently lying uselessly on deposit instead of overcapitalizing the banks immediately as was agreed back in November? why does the minister persist with keeping these sickly banks on a drip-feed starvation diet, a condition in which they can do nothing to help themselves or the economy but continue to be a drain on it? what can possibly be the cause of delay?
i mean, seriously, guys, had this been done in November, these banks would have been properly capitalized for *seven months now; think about it: six months after their bailout both rbs and lloyds were able to resume lending into the UK economy; but here we are in July and — nearly nine months past bailout — and the banks which were supposed to be alive and kicking by now are still half dead – what is the minister thinking?
@Seamus, NWL
I must confess to my confusion at the intra-group transactions (then again I also don’t understand why we have unconsolidated data for the ELG banks and consolidated data for the rest).
If the 25bn which was taken from ELG banks from MFIs was simply an intra-group transaction, say from BoI to ICS, then this is what we mean? I still don’t understand why, if this is the case, there has been the largest set of “intra-bank” transactions in the MFIs category for a long time.
Regarding the €26 billion MFI fall in may, it should be remembered that the dollar was falling rapidly in Mid May and ould have been particularly good value for banks with large holdings of euros.
Another factor could be the Sanofi-Genzyme deal (€20B), which could have involved funds being moved from Irish banks, as the headquatrers of Sanofi (the acquiring company) are in Paris.
A corporate with HQ in Paris is unlikely to leave funds in Ireland in the current environment.
Many of the multi-national businesses operating out of Ireland use this country as the point of sale to their EMEA customers. This involves the Irish subs receiving huge amounts of cash. The best examples of this type of sales operations are Microsoft through their Irish sub MIOL & Google through their operational sub GIL. Neither of these companies do their Treasury management out of Ireland, though Microsoft did have a Finance company here in the past.
While in many cases the money for the licence or service may be paid into a UK account, there is still substantial amounts of cash washing through these companies Irish accounts. Also there are a large number of treasury management companies based here, again while most of their accounts may be in London there is a degree of money running though the Irish branches of multi national subs.
The opening up of Facebook, Zynga etc here is going to make such movements much more volatile in the future. Lisa O’Carroll had a piece in the Guardian regarding Zynga being way ahead of their targets, http://www.guardian.co.uk/technology/2011/jun/29/zynga. As she is based in Ireland I can only assume that much of the growth has washed through here.
Irish trading subs tend also to have just sub licences. Licensing payments to intermediate holding companies are also made just a few times a year. See Jesse Drucker’s Bloomberg piece http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html for a description of such movements. Three major foreign owned companies have 30th June account year ends, Oracle, Microsoft & Diageo and there may have been tidying of outstanding dues. (I have no doubt that the Guinness brand has long since moved to a more tax efficient location.)
The Examiner:
“The Central Bank also said yesterday that deposits at the main banks fell 8.3% — €25.8bn in May, “largely as a result of movements of deposits by subsidiaries of the banks”.
That decline in deposits by “monetary financial institutions” amounted to €23.7bn of the above total, according to the figures.”
I remember disucssing this with you NWL awhile back about whether or not we can intpret the deposit data for the 6 ELGs the same as the other CB categories because their data is released unconsolidated – I am as confuses as ever now – perhaps this is the reason the Irish Times seems to rigidly avoid the newly-released ELG figures since they were released.
@Rob, I pursued it as far as I could with the CBI,and I concluded you could reasonably infer deposits health by looking at the ELG banks (or covered institutions or state-guaranteed banks, you know, AIB, Anglo, BoI, EBS, INBS, ILP). That is why I concentrate on these six and also on private sector deposits, because if we are to re-build a banking system without much debt market support, it will be households and businesses and their deposits that will mean banks can lend.
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I completely agree the ELGs are the important category to watch – I just wish the data was consolidated to net out the intra-transfers.