Deposits in Irish Banks: A Bank Run?

The release each month by the Central Bank of the Money, Credit and Banking Statistics has seen a shift in interest from the surge in private sector credit that occurred during the false Celtic Tiger phase to the rapid decline in deposits in Irish banks.

Here is a graph of the attention-grabbing trend.  Deposits in banks have been declining since early 2009 but there has been a marked acceleration in this fall since August 2010, with deposits falling by €200 billion in that time.

This measure of total deposits includes all credit institutions operating in Ireland, thus banks operating in the IFSC will be included even though they may have very limited links to the Irish economy.  The Central Bank allows us to break down the above total into domestic credit institutions and other credit institutions.  See this document which lists all credit institutions operating in Ireland.

When we break down deposits into those with domestic banks and those with non-domestic or other banks we see that the €200 billion drop since August has been pretty evenly split between the two groups.  Domestic banks have seen deposits drop by €95 billion since August.  We will have a closer look at the exit of this €95 billion.

Here we get a breakdown of the origin of the deposits.  It is evident that the fall in the deposit base of domestic banks is because of a huge withdrawal of deposits from rest of the world residents.  Since August these deposits have fallen from €193 billion to €121 billion.  As London is outside the eurozone it is likely that a lot of the deposits classified as rest of the world originated from here.

Deposits from Irish residents were largely static up to October, but in November and December there was a drop of €11 billion with deposits falling from €303 billion to €292 billion.  Like deposits from rest of the world residents, deposits from other Eurozone residents have been shown a steady decline since August and fell from €29 billion to €16 billion in the last five months of the year.

Deposits from Irish residents in domestic residents are down, but we know that the Irish savings rate is in excess of 10%.  Where are the existing and new deposits going?  If we look at a breakdown similar to the above for ‘other’ banks operating in Ireland we start to get an insight.

While both other Eurozone and rest of the world residents have been reducing their deposits in other credit institutions operating in Ireland, the last month of the year saw a fairly dramatic jump in deposits in this banks by Irish residents.  In December alone these deposits jumped from €35 billion to €54 billion.  This €19 billion increase in deposits by Irish residents in other banks is greater than the €11 billion decrease in deposits in domestic banks.

Although deposits from all sources are declining it is clear that deposits from rest of the world residents make up the bulk of the fall.  Since August these are down by €118 billion and the main withdrawer of funds have been monetary financial institutions who have taken out €99 billion since August and likely reflects Irish banks difficulties in obtaining funds from wholesale money markets.  This graph is for all credit institutions operating in Ireland. 

Here is a similar graph from deposits from Other Eurozone residents.  The series had been moving relatively steadily until October where there was a €78 billion drop in deposits from monetary financial institutions (more money market troubles?) and a €48 billion rise in deposits from general government (up from essentially nothing).  Since them monetary financial institutions have been remarkably stable and general government deposits have fallen back to €19 billion.

Of course, as we said above, most of the Eurozone deposits are held in non-domestic banks.  Of the €152  billion  of deposits that originated in the Eurozone only €16 billion was placed with domestic banks and this is down from the level of €29 billion recorded back in August.

Finally, we look at the breakdown of deposits from Irish residents. First up, households.

[Note the the break in the series in January 2009 is as a result of Credit Unions been added to the Central Bank’s banking statistics.  There is no other significance to this.]

For virtually the first 11 months of the year, deposits by Irish households were declining.  This largest fall was in November (down nearly €3 billion) but this was reversed in December which saw a €1 billion increase in deposits and likely placed in non-domestic banks.

Turning to the other categories of deposits from Irish residents.  All of these declined in December.

Virtually all measures of deposits in Irish banks have been falling in recent months.  Here is what has been filling some of the the gap.

And the Irish Central Bank has been doing its bit as well.  At a time when the policy is to make Irish banks smaller by reducing their asset base (loan books) here are the assets of the Irish Central Bank.

Since the start of 2008 the assets of the Central Bank have risen almost four fold.  Most of this increase can be attributed to two categories, though the surge in the  funds used under Main Refinancing Operations reflects the increased contribution by the Eurosystem of central banks rather than any unilateral action by the Central Bank of Ireland.

The surge since August can clearly be seen and this is the money that has been used to fund the outflow of deposits.  The notable category is Other Assets which is money the Central Bank has been ‘printing’  since Irish banks have seen huge reductions in their deposits from other financial institutions in the EU and the rest of the world. I hope we get it back.