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Banks
Central Bank "creating money" to keep Irish banks afloat - report
Analyst describes the move as a “horror story”.
IRISH BANKS ARE running out of collateral they can use to borrow from the European Central Bank (ECB), and have been turning to the Irish Central Bank for emergency liquidity support on an ‘unprecedented scale’, reports in the Telegraph and the Financial Times reveal.
The Telegraph report by Ambrose Evans-Pritchard reveals that Irish lenders, including Anglo Irish Bank, borrowed €51 billion from the Dame Street bank by the end of December, under what it calls “an obscure progamme listed in the balance sheet as other assets”.
The amount of so-called emergency liquidity support (ELA) increased by over €6 billion between November 26 and December 31, the Financial Times adds.
This comes on top of €132 billion in loans from the ECB itself – the figure normally tracked by analysts. The €132 billion figure already accounts for 24 per cent of all ECB lending.
Anglo Irish Bank is reported to be the main recipient of ELA support, the Financial Times adds. The newspaper claims that the ELA scheme involves collateral “which would not normally be acceptable to the ECB”. In the case of Anglo, the bank is reported to have pledged the promissory notes provided by the government as part of its recapitalisation.
These actions are authorised by Frankfurt, which confirmed to the Irish Independent last week that the Irish Central Bank was “itself creating the money it is lending to banks”. An ECB spokesman told the newspaper the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.
The spokesman added that the European bank is comfortable that the amounts involved are small enough not to be systemically significant.
However, some analysts are not so sure. Tim Congdon of the International Monetary Research says:
This is a horror story: it shows the cataclysmic condition of the Irish banking system. The banks have borrowed €183bn in total, or 110pc of Irish GDP. They have burned through all their capital and a lot of their deposits as well. This is going to end up on the national debt.
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