Figures released by the Central Bank of Ireland (CBI) this morning show that in the month of January 2012, the reliance by Irish banks on central bank funding fell steeply by €13.3bn from €151.4bn in December 2011 to stand at €138.1bn at the end of January. Central bank funding comes from two sources – the ECB and the CBI under the auspices of the ECB. The ECB funding fell by a record €14.6bn whilst funding from the CBI actually rose slightly by €1.3bn. Central bank funding is now at its lowest level since August 2010, though deleveraging by banks – mostly through asset sales – since 2010 make comparisons difficult.
What does this mean for Irish banking and the wider economy? If our banks are to return to some degree of normality, they will rely more on deposits from customers and lending from other banks. So today’s figures indicate (though don’t absolutely prove) that deposits and inter bank lending are rising as a proportion of overall bank funding. That is good news.
The ECB is now preparing for its second major intervention in EU banks. In December 2011, it lent €489bn to EU banks including those in non-euro countries. The lending was for three years and at the ECB’s benchmark interest rate, currently 1%. Yesterday the ECB indicated its next tranche of such lending which is expected on 28/29th February 2012 will be “significant” and of the same order of magnitude as the December operation. Some commentators and sources have suggested the ECB may make as much as €1tn available in February. Also the ECB is relaxing rules on the eligibility of collateral it will accept from banks in return for its funding. So expect an increase in ECB funding when the March 2012 figures become available.
We will get deposit information on Irish banks for January 2012, at the end of February. Deposit analysis for Irish banks for December 2011 is available here.
NAMA Wine Lake 
Re: the cheap ECB 3-year funding that took place in Dec:
I didn’t realise the significance from an Irish policy perspective at the time but is this essentially the Medium-Term facility that the Government was denied in March/April last year?
@NWL
I doubt the reduction of €13 billion in ECB loans is coming from the covered banks.
The ECB facility of €498 billion was for both EZ and EU banks (as you point out).
I would think that the reduction is a result of a non covered bank subsidiary ceasing to borrow from the ECB and borrowing intercompany (from parent) instead. A parent that now has plenty of ECB three year money.
It does clearly serve to highlight one important point. Of the so called ECB ‘support’ of €150 billion (now €138.1 billion) for ‘Irish’ banks, only one half is for the live covered banks (~67 billion), with a further one quarter being ELA which is mostly for the DEAD PARROT BANK that is Anglo.
LTRO overlap……..
http://www.independent.ie/business/irish/ecb-loans-to-bailedout-banks-static-despite-15bn-sector-fall-3016592.html