Sunday, January 16, 2011

Ireland - Run On The Banks Has Increased

The title alone is scary enough.  Reports out of the Irish Independent show that the deposit base has accelerated its decline as both foreign and domestic depositors become increasingly concerned about the inability for the government to meet their guarantee.

The deposit base is three times the GDP of Ireland.  There's no way Ireland could guarantee all the deposits, so what's to prevent people from withdrawing the little money that remains?  The implications are massive should this trend continue and it could very easily move to Portugal, Greece and other "debt challenged" sovereigns.

Apparently the Irish banks have run out of assets to pledge with the ECB and have now turned to Ireland to print euros through their own central bank.  Honestly, I had no idea this was possible which begs the questions are other PIIGS doing the same in addition to ECB funding? If the Irish banks have no assets of value to pledge with the ECB what are they pledging with the Irish government to protect the Irish taxpayers?  Yet another example of risk being transferred from private balance sheets to public.  When will bond holders be forced to share the risk they invested in?

The chart below shows the drop in deposit base and the rate of change.  Scary indeed.


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