SIGNIFICANT differences emerged yesterday between the Financial Regulator and Irish Life & Permanent (IL&P) about whether the regulator had approved the placing of a €7 billion deposit with Anglo Irish Bank. The transaction helped to bolster Anglo Irish’s financial strength before its year end last September following deposit withdrawals of €4 billion during the month.
It was revealed yesterday that the IL&P deposit placed with Anglo Irish had in fact originated with Anglo. Anglo made a loan of €7 billion to IL&P, which in turn used a non-banking subsidiary, Irish Life Investment Managers, its fund management business, to place the money back with Anglo Irish.
The transaction remained in place for just several weeks.
The circular mechanism used to transfer the temporary deposit enabled Anglo Irish to categorise the money as a customer deposit, enabling the bank to prop up its deposit levels and disguise the dramatic levels of withdrawals suffered by the bank during the unprecedented financial upheaval last September.
Customer deposits are regarded as a more secure source of funding than deposits from other banks.
The regulator and the Government-appointed directors at Anglo Irish are investigating whether it artificially propped up the bank giving a false picture of the bank’s financial strength at the end of its accounting year. Spokesmen for the regulator and ILP declined to comment.
Sources familiar with IL&P’s position said it felt the regulator and the Central Bank was in approval of such a transaction, having actively encouraged Irish banks to lend to one another to improve bank liquidity.
Minister for Finance Brian Lenihan confirmed last night that IL&P had tried to assist liquidity at Anglo, but warned that the issue could damage Ireland’s reputation.
“Clearly if there is any impropriety attached to these arrangements, there are dangerous in terms of the lack of confidence they give in the Irish banking system,” he said.
The company claims that it reported the transaction to the regulator within days of it being carried out, and that the transactions were fully accounted for in its regular reports and returns to the regulator.
Sources close to IL&P claim that Irish banks were encouraged to lend to one another to improve liquidity during September in an approach described as “the green jersey agenda” in regular discussions between the financial institutions, the regulator and the Central Bank.
However, the regulator’s stance is that it did not approve of the back-to-back lending of the €7 billion in deposits moving between the banks or of the nature of the transaction that allowed Anglo Irish to categorise the money as a customer deposit.
The regulator claims it only encouraged routine inter-bank lending and that it only became aware of the actual transaction in late October from IL&P’s returns. It receives daily reports on deposit levels from the banks, but these only showed deposits in aggregate.