Tuesday, May 31, 2011

Central Bank Funding falls but…

The Central Bank have released the April Credit, Money and Banking Statistics.  They should that the reliance of the covered banks on central bank funding has fallen again.

Central Bank Funding

The banks are using €74.2 billion of ECB funding down from €79.2 billion in March and the “Other Assets” category from the Central Bank of Ireland’s balance sheet fell from €66.7 billion to €54.1 billion.  Total reliance of the banks on central bank liquidity is now around €127 billion.  This is a big drop from the level of more than €150 billion recorded in February.

This appears to be a good thing but if we look to see what funds the banks are looking to replace the central banking funding the shine is knocked off this somewhat.  Specifically we look at deposits from Irish residents in the covered banks as this explains most of the above drop.

Irish Resident Deposits in Covered Banks

The reason the covered banks have reduced their demand for central bank liquidity is because of a jump in deposits from government.  The Irish government now has €21.3 billion on deposit with the covered banks.  For most of the previous three years it had hovered close to €3 billion.

The increase is because the government has already received the money for the bank recapitalisation process from the EU/IMF.  Over the coming months this money will be taken off deposit (which the government has to get back) and used as capital (which the government has no guarantee of getting back).

It does seem that the fall in private sector deposits in the covered banks seems to stalled and these deposits actually increased from €106.3 billion to €108.2 billion in April.

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