When the new Minister for Finance, Michael Noonan eventually got his feet under the desk at the Department of Finance after winning the General Election a year ago, he was presented with briefing notes by his Secretary General, Kevin Cardiff. The briefing notes – with heavy redactions – were released and it was striking that objective number one for the Department was to exude confidence in Ireland’s economy. This is the extract:
Since February 2011, we have witnessed the fiasco of the Department of Finance getting the calculation of the General Government Debt statistic wrong to the tune of €3.6bn (actually €3.719bn). We’ve witnessed the subsequent fiasco of an investigation under the auspices of the Secretary General whose Department made the mistake, and four months after the mistake was uncovered, we are still waiting on the results of the two investigations into how Employee A in the NTMA communication to Employee B in the Department of Finance wasn’t acted upon or escalated when it became clear it wasn’t being acted on.
But the Department of Finance has found the time to curiously stick its toes into an area which you might have expected to have been the preserve of the Central Bank of Ireland– reporting on deposits in Irish banks. The Department first issued a presentation in October 2011 in which it claimed that deposits in Irish banks were picking up momentum – “retail deposits have seen some momentum in September following the stabilization of the banks and their recapitalization, but it was last month 2012 that the Department started producing a monthly publication on “deposit trends” in Irish banks. Neither the Department nor the CBI has explained why it is the Department that is producing this information, and not the Bank. And the Department is not reconciling its figures with the monthly figures produced by the CBI, but says in general terms the differences are down to overseas deposits and “consolidation differences”.
The problem is that the Department is trumpeting its figures as evidence that confidence is returning to Irish banks and that the deposit position in Irish banks is improving after three years of turbulence. Last month the Department said that deposits at Irish banks had improved by €7bn or 4% in the last six months of 2011. Which is very impressive indeed. The Department declined to say how much of this was due to deposits in overseas branches of Irish banks, but thanks to a slide buried in a Department presentation that originally seems prepared for the Troika, we get the following:
So we see that even though deposits overall at the Irish covered banks increased by €6.8bn in the last six months of 2011, deposits in Ireland at Irish covered banks actually decreased by €0.2bn. So the increase in deposits has been entirely down to overseas branches of the covered banks increasing their deposits. It is indeed hard to see how Bank of Ireland’s €19bn of UK deposits has any impact on the Irish economy.UK retail deposits are covered by a GBP 100,000 guarantee from theUK government and it is not clear howUK deposits can promote lending inIreland.
But what is mostly unsettling is the Department of Finance plainly has access to the overseas deposit information – it produced it for its presentation to the Troika – but that it declines to draw attention to it domestically. Is it this Department of Finance that is prompting Government back-benchers to claim that “deposits are flowing back” into Irish banks?
The Department published its second “deposits trends” report yesterday and says deposits rose by €0.2bn in January 2012. You can read the report here but you might want to get your grain of salt first.
NAMA Wine Lake 
@NWL
I hope you aren’t suggetsing the 3.6bn was deliberately hidden for such purposes!
Regarding the deposits, it is getting confusing I have to admit – trying to keep track and reconcile the two different sets of figures coming from the DoF and CBI.
However:
“It is indeed hard to see how Bank of Ireland’s €19bn of UK deposits has any impact on the Irish economy”
Over the last year or so as deposits left Irish banks in their droves before stabilsiing (to an extent!), do you not think it important that BoI (and all the covered banks) can reassure potenital depositors that they do have overseas sources of funding to offset any weaknesses in the domestic deposit situation?
I mean, is it wrong to be reassured, if you are a BoI customer, that the bank has a huge number of deposits in the UK?
Whilst we are at it, what do you think of the European Commission’s new narrow definition of Irish banks when talking about deposits?
“Deposit outflows from domestically-owned banks (henceforth, “PCAR” banks)5 appear to have stabilised.”
Click to access ocp93_en.pdf
PAGE 6
Great work again NWL.
It’s just more chest-puffing and bravado from the most insecure yet over confident men in the land.
@Rob S
Of course it’s good for BoI customers to know the bank has large deposits elsewhere. But that wasn’t the key point the Dept. of Finance were trying to get across.
@Kieran Sullivan
Isn’t it?
They are trying (essentially) to reassure people that there is no need to move your deposits from a covered bank to a non-covered bank.
Obviously there is some implicit suggestion that perhaps deposits stabilising or slightly increasing is a direct result of an improvement in the wider economy but I can see some logic in the decision to publish these figures even if the CB should be doing it.
I can see some logic in the decision to publish these figures even if the CB should be doing it.
Be very afraid when an arm of the State susceptible to political influence takes on a reporting function that should be rigorously maintained at arms length by an independent agency. We’re in the mess we’re in because this independence was whittled away under previous administrations.
One think to take into consideration when making a decision regarding the safety of Irish bank deposits is the health of the overall Euro banking system. I would suggest that it is less than sanguine. And, it looks very much like the torrents of liquidity flowing out the the LTRO “project” respired their last breath.
*Bank of Ireland PLC: Tapped the LTRO in December and will likely do so again at the next opportunity, chief executive Richie Boucher said in a Wall Street Journal report Feb 20.
http://blogs.wsj.com/eurocrisis/2012/02/27/at-a-glance-banks-ponder-second-ltro/
http://www.reuters.com/article/2012/03/01/us-ecb-weidmann-idUSTRE82010G20120301?feedType=RSS&sp=true
@Conan
Well don’t confuse me seeing some logic in publishing them for actually thinking the DoF should be the ones doing it.
Or perhaps your ‘be afraid’ message was general.
Great Sherlock Holmes work again NWL. Apologies for continually beating this drum but isn’t this the type of analysis that should have its natural home on Irisheconomy.ie if that blog was truly doing its function? I’m not complaining because if I were allowed access only one website or blog to keep up to date with the Irish economy then NWL would be the choice. You’re worth your weight in economists!
I couldn’t agree more, Bunbury.
This site explains the issues in a simple straightforward way so that the great unwashed such as myself can readily understand the issues.
And the input from the various comments makes for very interesting reading.
NWL is doing a great service to all by providing this blog.