There is an update from the Department of Finance here and the Minister’s statement is here.
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The Ministers statement:
“In fact, I am confident that the ending of the scheme and the gradual removal of this liability from the taxpayer will also help to sustain Ireland’s re-entry to international markets.”
Spin, spin and spin again. How will this help in any way to make Ireland a more credible borrower?
Firstly, the exchequer is worse off by the amount of the ELG conceded, despite its shareholding in the banks. Who knows where the banks will decide to put the savings. A pension top-up perhaps, a bigger discount on fire-sales. The fact that
Secondly and more importantly, there is no removal of any ‘contingent’ liabliity in the eyes of the market or indeed of the Germany/Finland/Netherlands, cf the Finlandia pronunciamento as Colm McCarthy called it. If or when the deposits fly, will the ECB agree that the ensuing ELA is not a contingent liability! Dream on.
Lets call this exactly what it is. Another free give away to the banks, with nothing in return.
The PS are now being hit pretty hard at the lower levels over the past few years. Has any banker at any level had to endure any pay cut or pension cut? Have they been Croke Parked or Landsdowned.
The ELG or a bank levy should have been put in place until every last cent of the €64 billion was got back for the State. Even if it took a thousand years.
PS If this removes €73 billion in contingent liabilities, it indicates that about 50% of all customer deposits are in excess of €100,000 euros.
BOI / AIB customer deposits last June were €72 and €63 billion respectively, a total of €133bn. One would have thought that the deposit structure would be more pyramid shaped. This kind of deposit structure is not exactly conducive to the removing of the ELG guarantee. Watch that space.
Essentially the government is saying that the banks in Ireland have made loans that are backed by sound collateral. Since the Central Bank of Ireland is liable for all ELA it is reassuring to all of us that we are now off the hook. On the other hand to be prudent we should also know how quickly can the Gov’t turn the ELA tap back on.
ELG, as far as I know, covers certain deposits (over 100K) and ‘securities’.
At June 2012, the following were the total of customer deposits and debt securities in the three ‘Irish’ banks.
Customer Deposits BOI/AIB/PTSB : 72BN, 63BN, 17BN: Total 152BN.
Debt Securities :BOI/AIB/PTSB: 18BN, 12BN, 8BN : Total 38N.
Some of the debt securities are probably covered bonds, so are already covered by bank assets. I doubt that there are many ‘unsecured bondholders’ still remaining in the banks.
The Ministers figure of 73BN, therefore, has to be largely in respect of deposits over 100,000. These deposits would be term deposits, most probably with terms not exceeding 12 months, that would expire over time. I did hear one commentator suggesting that the deposits could be ‘renewed’ in some fashion up to March 28th, thereby extending both the term of the deposit and therefore the ELG cover as required for up to five years.
Some may do this. Others may take the money and run or leave the money on deposit uninsured.
The figure of 73BN used by the Minister is higher than I would have expected. It certainly means that the profile of bank deposits in Ireland is not that of small savers with small deposits. It is clearly a deposit base of large depositors, either personal or corporate. This feature would make the deposit base wobbly and volatile to say the least.
A person with 5,000 in the bank, is unlikely to get involved in an early deposit run.
A person with €500,000, on the other hand, will have both the ways and means to remove his or her money quickly and is more likley to a professional investor with his ear to the ground.
On a broader front, the European banking system is now an unashamed casino, whereby unsecured depositors are queue jumped every day in their security by covered bondholders, thereby leaving the small deposit holders at the end of the creditor queue. There is as yet no bank resolution in sight and even if now put in place, virtually all unsecured bondholders are long gone. Neither the ECB, nor the bankers nor the creditor countries, nor most governments see much urgency in protecting small depositors, it seems. Funny that!
The banks then gamble the money! Really.
Deutsche bank balance sheet at Dec 2011 had 2164BN in assets, 84% of German GDP (2567 in 2011).
But ‘positive market value from derivative financial instruments’ was 860BN or 40% of the asset value of Deutsche Bank. In other words, bets that were winning at the date of the balance sheet. In fairness this is offset on the liability side by, ‘negative market value from derivative financial instruments’ of 838BN, in other words bets that were losing at the time of the date of the balance sheet.
That is the world into which a small depositor puts his few bob and after the past few years of the unsecured bondholders getting out, the small depositor is left to carry the can. He is alone at the back of the queue.
He, in Ireland can look forward to the DGS scheme, a government guarantee (remember those), a scheme with funds of about €350 million to cover small deposits estimated at about ~80 billion.
He need not rely on bank assets, as many of these will already have been given away to ‘covered’ bondholders.
Over all this mess or casino or entrepreneurial genius, depending on your point of view, presides the ECB, modelled we are told on the Bundesbank, the stateliest paragon of conservatism in the world. But firmly intent on ensuring that the gamblers do not lose, regardless of who bears the cost.
The casino is so well constructed that a loss on one table alone could bring the house down.