Figures released by the Central Bank of Ireland (CBI) this morning show that the elevated reliance by Irish banks on funding from the CBI and the ECB declined by €4.1bn in July 2011. The figures show that ECB funding to Irish banks at the end of July 2011 stood at €97.6bn, down €5.4bn in June. Funding from the CBI, understood to be mostly Emergency Lending Assistance (ELA) rose by €1.3bn from €55.7bn to €57bn.
The figures overall point to a lessening reliance on central bank funding and will generally be greeted as good news. There is an implication that deposit levels may have stabilised further or that other sources of funding, for example investment or sale of assets, have materialised to replace a deposit flight that has been ongoing for over a year. Of course it was 21st July, 2011 when the EU summit concluded with a commitment to future funding of eligible countries as well as an interest rate reduction on our sovereign bailout funds – all in all, the summit agreement should have boosted confidence inIrelandand by extension Irish banks.
It will be the end of August 2011 when we get to see how deposits in Irish banks fared in July 2011. So the figures released this morning are only indicative of a slight strengthening in the funding position of Irish banks. And before we get carried away, the fall was just €4.1bn in the month – and in May 2011 there was a €4.2bn decline only to be followed by an increase in June 2011 – and we are still at the level of funding provided in October 2010.
NAMA Wine Lake 
This is a surprise because I was expecting the withdrawal of deposits earmarked for recapitalisation purposes to have a negative effect in July – so two questions come to mind.
1) Am I correct in saying that if a bank loses 10bn in deposits but gains 10bn in capital than it is still in a negative 10bn funding situation? Essentially, am I right in thinking recapitalisation monies don’t reduce (on their own) reliance on ECB/CBI funding?
2) I note the date on the Central Bank’s July figures is July 29th: If memory serves me – press reports that week did say the recapitalisations took place before then but is it possible some of deposits were not taken out until July 30th/31st?
Finally, this is my breakdown of what went on recapitalisation-wise in July
IL&P = 2.7bn (they aren’t putting in the other 1.1bn yet)
BoI = 1bn (the contingent capital)
AIB (EBS) = 13.1bn
I can’t be certain that all went into AIB by first time of asking (its in three parts) but thats 16.8bn. Well short of the money earmarked and again a possible reason for the positive (ish) figures above.
RTE are reporting that the CB figures rose in July because of the recapitalisation which does make sense http://www.rte.ie/news/2011/0812/central-business.html
@Stephen, RTE says
“Irish banks’ emergency loans from the Irish central bank rose to nearly €57 billion at the end of July from €55.7 billion at the end of June, bringing their total dependence on monetary funding to €154.6 billion.”
That is correct, as noted above the funding from the Central Bank of Ireland increased in the month, but this increase from the CBI was more than offset by reduced funding from the ECB.
@RobS, I’ve gone backward and forward on your first question. The bank balance sheet went through the following phases
1. healthy
Loans 5, Cash 5, Deposits 9, Capital 1
2. deposit run
Loans 5, Cash 0, Deposits 4, Capital 1
3. central bank funding and continuing deposit run
Loans 5, Cash 3, Deposits 2, Central Bank 5, Capital 1
4. government receives bailout funding and puts it on deposit with banks
Loans 5, Cash 4, Deposits 2, Govt Deposits 3, Central Bank 3, Capital 1
5. the government converts its deposits to capital
Loans 5, Cash 4, Deposits 2, Central Bank 3 Capital 4
So although the conversion from Govt deposits to capital will change the total loan:deposits, I think it means that the Government’s capital injection acts as a substitute funding for central bank funding.