emergency funding

The ECB is succeeding in its mission to wean Irish banks off emergency eurozone support – but at a cost. Data from the Irish central bank suggest that support for Ireland’s banking sector rose €18.9bn in the month to February 25 to stand at €70.1bn (red on the chart). ECB support fell €9bn to stand at €116.9bn (blue on the chart). This means that combined assistance rose €10bn to €187bn, a new record. As you can see on the chart, combined assistance (the total height of the bar) dipped in the month to January, but has now risen again, suggesting banks’ needs are growing.

For the Irish central bank, assistance to the banking sector (under “Other assets”) now constitutes more than a third of total assets. Indeed, assistance for banks is approaching half of the country’s GDP. As David Owen, chief European economist at Jeffries points out: “There is a school of thought that this €70bn or so of emergency liquidity is a contingent liability of the Irish state and so should be treated as such. If so, then outstanding Irish government debt-GDP could soon be heading towards 175 per cent. It will be interesting to see what the IMF says on the subject, when it publishes its assessment of the economy and debt dynamics 15 March.” Indeed it will.

Weaning Irish banks off emergency funding from the ECB will take longer than hoped, after Irish authorities suspended plans to force the country’s troubled banks to sell off huge portfolios of loans.

The country’s banks need to offload as much €100bn ($139bn) of legacy assets as they undergo a drastic clean-up of their balance sheets following the huge losses they suffered during the financial crisis. The ECB wanted the deleveraging to be undertaken quickly so the banks could whittle down their reliance on emergency funding, which has risen to about €140bn. Read more

Ralph Atkins

Something went badly wrong somewhere in the eurozone banking system late on Wednesday evening. Use of the European Central Bank’s emergency overnight “marginal lending” facility jumped to €15.8bn on Thursday, the highest since June 2009, according to data just released.

The facility, which incurs a penal interest rate, is there to get banks out of unexpected difficulties in their daily liquidity management. So a sudden increase is not unusual and the latest spike may simply have been the result of a temporary glitch. But the amount borrowed is impressive, especially considering that June 2009 was still a time of considerable nervousness in financial markets. Read more