Ireland's central bank lent banks based in the country a record 70 billion euros in special funding at the end of February, a jump of 19 billion euros from the previous month, data showed on Friday. Irish banks, at the root of the country's financial crisis, are dependent on central bank funding due to deposit outflows and their exclusion from interbank lending markets amid concerns about the sector's future.
The central bank said over half of the increase in the special funding was due to the European Central Bank (ECB) beefing up its rules on what it would accept as collateral for loans. "A change in Eurosystem collateral rules led to some additional temporary reliance on exceptional liquidity assistance while the relevant collateral was being reconfigured to restore eligibility," the central bank said in a statement.
A spokeswoman for the central bank declined to say whether there would be a reduction in special funding from the Irish central bank this month. Ireland-based banks' reliance on funding from the ECB eased to 116.9 billion euros from 126 billion euros at the end of January, the data showed. Some of this funding is channelled to foreign lenders based in Ireland. In January, they accounted for around a quarter of those funds, the central bank said.
Assuming domestic Irish banks borrowed around 88 billion euros from the ECB last month, their total reliance on emergency funds from Dublin and Frankfurt comes to around 158 billion euros, roughly equivalent to Ireland's annual economic output. Reckless property lending brought Ireland's banks to the brink of collapse, forcing Dublin to request an 85 billion euros EU/IMF bailout last year. But with property losses expected to keep rising, investors still fear that the banking sector will bankrupt the sovereign, putting Ireland's new government under pressure to wring additional concessions out of Europe on dealing with the banks.
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