Saturday, February 12, 2011

Bank Liabilities and “Big European Banks”

As of the end of December, domestic Irish banks had total liabilities of €742.5 billion.  Here is the list of banks included in this total.

ACC Bank plc
AIB Mortgage Bank*
Allied Irish Banks plc*
Anglo Irish Bank Corporation plc*
Anglo Irish Mortgage Bank*
Bank of Ireland Mortgage Bank*
Barclays Bank Ireland plc
Danske Bank A/S
EBS Building Society*
EBS Mortgage Finance*
ICS Building Society*
Investec Bank plc (Irish Branch)
Irish Life & Permanent plc*
Irish Nationwide Building Society*
KBC Bank Ireland plc
Northern Rock plc
Rabobank Nederland
The Governor and Company of the Bank of Ireland*
Ulster Bank Ireland Limited
Credit Unions

55% of the banks on the list are covered by the bank guarantee scheme but the Central Bank do not provide data on what proportion of the total bank liabilities are due by the guaranteed institutions.  It could be more than 55%, but we don’t know.  The only thing we can really say is that 100% of the liabilities in these figures are not against the guaranteed (and likely nationalised) banks. 

To give some insight into this at the time the blanket guarantee was introduced in September 2008, the total liabilities of domestic banks was €787 billion.  We know that that guarantee covered approximately €440 billion of liabilities.  This suggests that 56% of the total banking liabilities were covered by the guarantee.  We do not know what has happened to this ratio since then and the scale of the guarantee was subsequently reduced.

Here is a breakdown of the current €742.5 billion of liabilities on domestic banks’ balance sheets.Bank Liabilities

The money owed to the Irish Central Bank under the Emergency Liquidity Assistance programme is under ‘Other Liabilities’.  The smallest liability category is ‘Debt Securities’ which includes the much maligned bondholders.  Here is how total liabilities of domestic banks have changed over the past three years.

Total Domestic Bank Liabilities

What is also important is who is actually owed this money.  First up we can divide it between Irish resident, non-resident and Eurosystem liabilities.

Liabilities by Creditor

Of the total liabilities of Irish banks, 63% are now owed to Irish residents.  There has been a number of claims that the “Irish bail-out” has been orchestrated to save “big European banks”.  Looking at the above does suggest that it is non-residents who are getting out (unscathed?) from the Irish banking market, with liabilities to non-residents dropping from around €406 billion in October 2008 just after the guarantee was introduced, to less than €190 billion now.   But how much of this was owed to European creditors?

We can breakdown deposits and debt securities into holdings by Other Eurozone and Rest of the World residents.  We cannot do the same for the capital and reserves or other liabilities categories but these only make up €21.5 billion of the total of €189 billion of non-resident liabilities in domestic banks.  So how is the remaining €168 billion distributed?  Is this the money that needs to be paid back to rescue “big European banks”?

Erm, it appears not.

Liabilities by EU and RoW

Of the liabilities included only 15.6% are owed to other Eurozone residents.  The greatest bulk of it is due residents from the rest of the world (€26.3 billion versus €141.6 billion).  Liabilities to Other Eurozone residents have dropped by €32.3 billion since the €58.6 billion that was outstanding at the time of the guarantee. 

This is dwarfed by the €182 billion drop in liabilities to rest of the world residents since October 2008 this stood at €323 billion.  The accelerated decline since August 2010 is once again noticeable.  The inclusion of the €21 billion of capital and reserves and other other liabilities for which the Eurozone/RoW breakdown is not available is not large enough to change this.

Of course, this is not a firm conclusion and the money could be arriving here from “big European banks” via international markets and placed under the Rest of the World category.  As London is outside the Eurozone and classified as Rest of the World this could be an important consideration.


  1. I think one of the things to be careful with is the deposit guarantee scheme and the ELG deposit guarantees. A figure of 80 bn in domestic deposits for the six domestic banks of deposits under 100k at the time of the guarantee has been given repeatedly by former minister O'Cuiv. I've no reason to doubt this figure, but it is not the whole story - some domestic branches of foreign institutions are also covered by the DGS. How much does this amount to? How much do the guaranteed foreign deposits of the domestic banks amount to?

    Even without the original guarantee, the extended DGS of August (?) 2008 was an incredible risk.

    What I do commend your piece for showing, though, is that the "protecting widows in Baden-baden was as much spoof as suspected and that the systemic nature of Irish banks to the eurozone has been blustered out of proportion, much in the same way that the world didn't end when the Icelandic banking system closed down.

    Indeed, looking at the list of creditors of the Kaupthing on wikileaks is instructive. Mostly they are banks, but they are investment funds operated on behalf of clients, not the banks themselves. I suspect this is also true of Irish banks and, as you suggest, much of this operated from London or other non-eurozone banking centres yield chasing. (In precisely the same way they yield chased into Iceland...).

    One point of order, you label and in the text refer to the EU and eurozone interchangably; they are not, as I've no doubt you are aware.

  2. Hi yoganmahew,

    Thanks for comment. You're right about the looseness in using EU and eurozone interchangeable. I have corrected that.

    And yes, there has been an amount of spoof and bluster around this issue. The impact of the original DGS is important when considering the marginal impact of the ELG and is not something I had considered.

    Although not required to do so it would be of huge benefit to everyone if the Central Bank provided a breakdown of the data for the guaranteed institutions. At least then we could have some accurate discussion rather than the hyperbole than many are coming out with.

  3. "Although not required to do so it would be of huge benefit to everyone if the Central Bank provided a breakdown of the data for the guaranteed institutions. At least then we could have some accurate discussion rather than the hyperbole than many are coming out with. "

    Absolutely. While data provision has moved on well since Mr. Honohan took charge (see S3 unemployment rate, for example), each new release is another veil dropped. Sadly the voluptuous dancer seems to have more than seven!

  4. Oops, S3 is nothing to do with Mr. Honohan... I meant to say the statistics in the CB quarterly report and also that the CSO has improved recently too...

  5. Hi Seamus

    Excellent piece of work. It is very easy to shout "burn the bondholders" - it is much harder to say how this will be done and how much it will save the taxpayer. I am trying to figure out how much burning the Anglo bondholders would save us, but I am making very little progress.

    Arthur Beesley in today's Irish Times says that €33 billion is owed to Irish-domiciled bondholders. Not sure where he gets that figure, but assuming it's true, is this reduced further by holdings by IFSC companies?

    Brendan Burgess