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Irish Bank Run Only A Matter Of Time

  • Written by Syndicated Publisher No Comments Comments
    December 31, 2010

    Following the publication of the monthly Central Bank of Ireland flow statistics for November, that the country’s bank ended up borrowing another massive amount of capital from both Europe and the central bank itself, should not be surprising. After all it was in November that Ireland followed Greece into the insolvency abyss, a place where none other than Olli Rehn guarded the gates to feudal hell. However, one much more troubling factor is that the depositor run from Irish banks, a development which many have cited as potentially being the catalyst for the next major step down in the European house of cards tumble, is accelerating. From the report: “Deposits from the Irish resident private sector were 6.7 per cent lower on a year-to-year basis in November 2010. The annual rate of change in deposits from Irish households was minus 4.5 per cent, whereas deposits from Irish NFCs fell by 14.9 per cent on an annual basis in November.” What this means simply said, is that as more deposit capital is withdrawn from Irish banks, the more they will need to rely on ECB and ICB funding, the more distressed they will be perceived as, the more capital will be withdrawn and so on… But that is a 2011 story.

    From Reuters:

    The European Central Bank lent banks in Ireland, including foreign lenders, 138.2 billion in November, an increase on the 136 billion euros Ireland’s central bank said lenders had received up to November 26.

    Domestic banks accounted for 97.3 billion euros of the total, a rise of 13.7 percent during a month that ended with Ireland securing an 85 billion euro IMF/EU bailout, the central bank said in a statement on Thursday.

    However, as every financial transaction in Europe has a secondary central bank intermediary, the realy bulk of money actually came from the Irish Central Bank (which in turn had also borrowed from the ECB):

    On top of the ECB funding, Ireland’s central bank had lent the country’s banks nearly 45 billion euros in exceptional liquidity assistance by November 26, a 10 billion euro increase on the previous month. No update was provided for this figure.

    Before one dismisses these amounts, keep in mind that Irish GDP is about $170 billion (assuming one can believe any such numbers out of Europe)…

    Yet lending is easy: all the ECB would need to do is get Germany to finally agree to print some more paper: if Merkel is uncomfortable with this process, she can merely retain the services of one Brian Sack: he will be sure to explain all the nuances. What is far more difficult is to convince people that their deposits in the banking system are safe. And that’s where Ireland is failing:

    Deposits from the Irish resident private sector were 6.7 percent lower on a year-to-year basis in November, separate figures showed.

    via As Irish ECB Borrowings Surge, The Country’s Bank Run Picks Up Speed | zero hedge.