There is no longer monthly tracking on here of deposits in Irish banks. That’s because the deposits felt to be the most important for the long term health and sustainability of our economy are so-called “retail deposits” from ordinary households and businesses and after serious declines in 2009 and 2010, began to stabilize in mid 2011 and have remained stable and increased modestly since then. So, in terms of deposits flowing out of our banks, we are no longer on the critical list, and so there is no longer monitoring on here.
We were reminded last week, however, that deposits in banks go further than just retail deposits. And we found out that in total in 2012, deposits fell at Irish banks in Ireland by 15%.
The information was revealed in a response to a parliamentary question from the Fianna Fail finance spokesperson Michael McGrath who asked Minister for Finance Michael Noonan for statistics on the Central Bank’s deposit guarantee scheme. Remember in Ireland, your deposits are insured for up to €100,000 should a bank fail and this will not be affected by the withdrawal of the Eligible Liabilities Guarantee at the end of March 2013.
Each December, banks in Ireland hand over 0.2% of their deposits to the Central Bank who holds the money in case a bank fails and the Central Bank has to pay out. At the end of 2012, the Central Bank held €379m which represented 0.2% of the €190bn on deposit in Ireland at the end of 2012. This was down 12.9% from the €435m held by the Central Bank at the end of 2011 which represented deposits of €218bn. In 2012, the Central Bank introduced a deposit guarantee scheme for credit unions also.
In practice if a bank goes belly-up then €400m may not go a long way to compensate depositors up to €100,000 but that is the scheme that we have in this State.
But, if you compare the Minister’s response with the monthly publication from the Department of Finance, you will be confused because it shows:
The Department of Finance shows retail deposits in Irish banks, including deposits in overseas branches, notably in the UK where Bank of Ireland manages the deposits of the British post office. But the Department of Finance will exclude a range of deposits including some bank-to-bank deposits. Aside from the fact that the Department of Finance includes overseas deposits in Irish banks, the series is probably more meaningful to our economy in the long term.
But the fact remains that deposits dropped 13% or €28bn in 2012, and to the extent that these deposits would otherwise be available for lending in the economy, it is worth noting.
The full parliamentary question and response are below and are online here.
Deputy Michael McGrath : asked if he will set out in tabular form the balance held at year end for each year from 2007 to 2012 in the deposit protection account at the Central Bank of Ireland which will be used to fund any deposit guarantee scheme pay-out; the number of occasions on which payments have been made from this account since its inception to compensate savers; the amount involved; his plans to review the operation of the account following the liquidation of Irish Bank Resolution Corporation; and if he will make a statement on the matter.
Minister for Finance, Michael Noonan: Table
The operation of the Deposit Protection Account is governed under European Communities (Deposit Guarantee Scheme) Regulations 1995 (SI No. 168 of 1995).
The table above shows the balance held at year-end in the Deposit Protection Account (DPA) at the Central Bank of Ireland. Each deposit-holding institution is required to maintain a balance on their DPA account of 0.2% of their total deposits (with a minimum amount of €50,000 in the case of all institutions except credit unions). This percentage is calculated annually in December. Interest is paid by the Central Bank on the DPA balances (1). The decline in the DPA balance reflects the drop in deposits in Irish credit institutions.
The IBRC liquidation event is the first occasion on which payment will be made from this account.
IBRC held a balance of €1.3 million in their DPA account at the date of liquidation. This amount will be used in the first instance to fund the DGS pay-out, before the DPA accounts of other institutions are required to provide funds for this event. The cost of the DGS pay-out will be charged against the deposit of each credit institution in proportion to their share of the total balance on the DPA.
The final cost of pay-out will not be known until the Special Liquidators have completed their investigations in the next few weeks.
After the pay-out in respect of the IBRC liquidation event, the Central Bank of Ireland will become an unsecured creditor of IBRC (in liquidation) in respect of the amount paid out under the scheme. If the Central Bank does not secure payment from IBRC (in liquidation) in respect of this unsecured debt, all other contributing institutions will be required to replenish their deposits in the DPA by end 2013, to meet their obligation to hold a DPA balance of 0.2% of total deposits.
1. Section 4 of the Financial Services (Deposit Guarantee Scheme) Act 2009 for credit unions provides that from 30 November 2012, each credit union will be required to maintain in the Deposit Protection Account at the Central Bank of Ireland, an amount equal to 0.2% of the deposits and shares held on behalf of members.