Flight of private sector deposits from Irish banks continues in August 2011

“We will look into our ability to provide further breakdowns. Some bloggers complain that the Central Bank publishes so much data that they do not have time to sort it out” Governor of the Central Bank of Ireland, Patrick Honohan speaking before the Committee on Finance, Public Expenditure and Reform on 2nd September 2011

At the Committee hearing last month, Professor Honohan didn’t identify the complaining “bloggers”, but he might have had in mind last month’s blogpost on here which indeed did have a moan about the volume of data now produced by the Central Bank of Ireland (CBI) but only to highlight the fact that the CBI does not produce the one analysis that arguably matters most to the long term sustainability of Irish banks – a breakdown of deposits by ordinary Irish households and businesses in the so-called covered banks (essentially the two pillars, AIB and Bank of Ireland, and also Permanent TSB). And the CBI still doesn’t produce that analysis – the CBI does however provide a break-down of deposits in all banks operating in Ireland (which includes those in the IFSC which don’t really matter to the domestic banking sector) and it does provide an overall total of private sector deposits in the covered banks –  it just won’t release a break-down of deposits in the covered banks. So the moan from here is not that the CBI produces too much data or there’s not enough time to sort it out, it’s that it omits data on arguably the most important indicators of health of our banking system. If our banking system is to recover, then ordinary households and businesses will need re-discover trust in our own banks and place their money on deposit there, and that is the metric most focused on here.

Yesterday the CBI released its monthly data on banks, deposits and loans in Irish banks as at 30th August 2011. During the month of August 2011, deposits by ordinary households and businesses continued to decline but at a reduced rate compared with previous months. In terms of the covered banks  these deposits were down €342m compared with the previous month, and €25bn compared with the same time last year, so the rate of decline has slowed considerably. It hasn’t yet reversed, mind.

Sadly non-Irish residents deposits in the covered banks fell in August 2011 despite a rise – the first rise in a year – in July 2011. If the July rise had continued, that would indeed have been interesting because one possible inference would have been that confidence in the Irish banking system was returning more quickly outside the country than within it. Sadly though, July 2011 seems to have been a blip; for now at least.

Deposits in the covered banks overall increased in August 2011 as a result of the Monetary Financial Institutions (MFIs). Here again, the CBI is not particularly helpful with its information. The CBI definition of MFIs is given at the bottom of this blogpost and seems to include credit union accounts.

The continuing decline in ordinary Irish deposits in the covered banks is disappointing. Remember that Irish banks are probably the most poked and tested banks in the world, with close monitoring by a bolstered national central bank, not to mention daily and weekly reporting to the ECB, the EU and IMF as part of our bailout terms. We also tend to offer higher retail deposit rates and of course there is a very generous State guarantee of deposits. Frankly, it is surprising that other countries are not complaining at our competitive advantage! Sadly though, we appear not to have been able to build on these strengths, though of course confidence is but one determinant of deposits – the poor state of the economy may be offsetting any increased confidence that has developed, and it might be that households and businesses just don’t have the excess cash to place on deposit anywhere.

In the mainstream media today, you might be forgiven for being confused with the reporting – the Irish Times going with the headline “Deposits in Irish banks rise for first time in a year”, the Irish Independent went with “Deposit outflows slow to €342m in August for domestic banks” and RTE went with “Lending and deposits still falling”. You can extract from the plethora of data produced by the CBI, information to support practically any headline you want really, depending on what group of banks and what deposits-heading you examine. Here’s the full monty :

First up is the consolidated picture for all banks operating in Ireland including those 450-banks 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 – Anglo and INBS have now been merged to form the Irish Banking Resolution Corporation, IBRC)

(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)