Monday, 31 January 2011

Banking crisis looms

An Saoi: Last Friday's Irish Independent had a story suggesting that the Credit Union movement is skeptical about the value of the Government's Bank guarantee to depositors. Back in January 2009, the Registrar of Credit Unions wrote a letter to all Credit Unions advising in relation to surplus funds:

“In the current financial environment, priority should be given to the holding of surplus funds in short term deposit accounts in credit institutions where the amount deposited is statutorily guaranteed. Where commercial considerations clearly justify longer term deposits, these should only be considered where there is no undue risk to members’ savings. However, such investments should be the subject of detailed analysis and careful consideration by the full board, having regard to the future liquidity requirements of your credit union.”

In effect, Mr. Logue, the Registrar, told Credit Unions to place or keep over €3,000M on deposit in the Irish Banks, which would not have happened using any rational analysis – why would you risk placing all your spare cash on deposit in failing financial institutions that needed a State guarantee to stay open?

In a piece I did last week, see here, I commented on household deposits. It now seems a major group of commercial depositors also wish to withdraw their cash from the beleaguered Irish banks. Tuesday 1st February will see the publication of the December banking statistics by the Central Bank, which are likely to show further falls in deposits. It now appears that despite NAMA, all the money from the State & National Pension Fund that has gone into the banks to date and finally the next tranche to be poured into the black hole via the EU/IMF deal, no one trusts the Irish banking system. A banking crisis looms and will be the first of many such crises to face the incoming Government. Squeaky bum time!


An Saoi said...

Following on from this post, written over the weekend, I see "industry" sources, i.e. the banks, are suggesting that the ILCU comments are "negligent". Read it in the Irish Examiner,

Rory O'Farrell said...

I find it disturbing that they consider it "irresponsible and negligent for the ILCU to question" the guarantee.

If only the banks and financial regulator had been more questioning then they might show the same financial health as the credit unions.

The guarantee will be defaulted on. The only question is if the government debt will also be defaulted on.