ECB LENDING:EUROPEAN CENTRAL Bank (ECB) lending to Irish financial institutions, including international banks in the IFSC, reached an all-time high of €58.6 billion in September, as the worsening global credit crisis forced banks to turn to the Frankfurt-based bank for more funding.
The amount borrowed from the ECB jumped 35 per cent, or €15.3 billion, to €58.6 billion at the end of September from €43.3 billion a month earlier as the collapse of US investment bank Lehman Brothers last month froze the wholesale and inter-bank money markets, leading to a surge in demand for discounted central bank funding.
The €58.6 billion figure, which was contained in the Central Bank's August monthly statistics, updated yesterday, is more than double the amount borrowed from the ECB by Irish financial institutions a year earlier, reflecting the increasing severity of the global credit freeze. Irish financial institutions are more heavily reliant on ECB funding, compared to other financial institutions in the rest of Europe, than at the end of last year.
The level of Irish borrowing as a percentage of all ECB lending to financial institutions is almost double the level at December 2007.
The percentage of borrowing from the Frankfurt-based bank by Irish financial institutions stood at 12 per cent of all ECB borrowing by European banks, compared to 6.2 per cent at the end of 2007. Total lending to euro zone financial institutions from the ECB stood at €487.3 billion at the end of September.
A spokeswoman for the Central Bank said: "Funds provided by the bank as part of the ECB's monetary policy operations increased in the context of an increase in overall liquidity support in the euro area as banks experienced increased difficulties in accessing term funding on inter-bank markets."
The cost of euro borrowing among banks for three-month money - the rate that sets mortgage costs for banks across the euro zone - fell slightly yesterday but remained near record highs, reflecting the continued stress in the credit markets, despite co-ordinated global interest rate cuts on Wednesday aimed at reviving lending between banks.
International institutions operating in the Republic account for a large proportion of the Irish borrowing from the ECB. The exact borrowing by Irish-owned financial institutions is not clear as the Central Bank does not provide a breakdown of the overall figure for borrowing by individual institutions.
Anna Lalor, analyst at Goodbody Stockbrokers in Dublin, said the information showing how the €58.6 billion is broken down by type of bank operating in Ireland would not be available until the end of this month.
"We will not be able to tell until then whether the €15.3 billion increase was due to the domestic Irish banks or by foreign banks operating out of the IFSC.
"In August, non-clearing foreign banks operating in Ireland accounted for 39 per cent of Irish borrowing from the ECB," she said.
Goodbody Stockbrokers said that, of the €43.3 billion of ECB borrowing outstanding at the end of August, the share held by Irish retail banks - AIB, Bank of Ireland, National Irish Bank and Ulster Bank - was €1.6 billion.
The share borrowed by Irish mortgage lenders - ACCBank, Bank of Scotland (Ireland), EBS, First Active, ICS, IIB Bank, Irish Life Permanent and Irish Nationwide - was €14.7 billion.
Banks have been forced to turn to the Frankfurt-based bank for discounted money sold in its regular money-market auctions. The bank has injected hundreds of billion of euro into the euro zone banking system over the last year as the credit crunch deteriorated to help tide banks over for short-term funding as liquidity has dried up and grown more expensive.
