# What would happen to deposits if the ECB does pull liquidity ?



## Wig (27 Dec 2010)

I read on Bloomberg that the ECB will pull liquidity to banks in March 2011 ??? I have also read that the ECB are getting increasingly angry at the Irish govt. Over 30% of all ECB liquidity goes to Irish banks despite our tiny size. 

My questions are simple, what would happen to the Irish banks when the ECB pulled liquidity to the Irish banks? Why is the ECB giving so much more money to Irish banks in recent months? Where will Irish banks get the money to pay 150 billion back to the ECB ?


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## Lightning (27 Dec 2010)

The ECB have said that they will pull all emergency liquidity in Q1 2011. I think, in all reality, the ECB will extend that liquidity beyond Q1 2011. (Although some analysts surprisingly believe the ECB will genuinely pull liquidity). 



Wig said:


> What would happen to deposits if the ECB does pull liquidity ?



The 6 Irish banks have about 150 billion in liquidity from the ECB/the Central Bank of Ireland. 

What would happen if the ECB/Central bank of Ireland pull this liquidity? If 150 billion was taken out of the Irish banks, in their already highly fragile state, all 6 Irish banks would collapse and deposits would be gone. 

All the more reason to think this won't happen and that the ECB will extend liquidity to the 6 Irish banks beyond Q1 2011.


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## UFC (27 Dec 2010)

Ireland would have to default...

What that means about savings, I don't know, but I would imagine in the best case scenario you wouldn't be able to access them for a while.


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## Troy McClure (28 Dec 2010)

Simply wont happen. The reason they forced the IMF on us was because the wanted to stop this flow of credit, Irish banks have been enjoying, but yet protect the big German, French and UK banks that are owed billion by the Irish banks. This is why they refused to let senior bond holders take a hit over the Irish taxpayer.
This story has a bit to run yet. It crazy to think that investors are protected at the expense of taxpayers. It's also untenable, as it's not affordable. The investors know this and alot of senior bond holders have sold on this their debt already. 
This whole carry on is about protecting large banks that are exposed to Irish debt and thus stopping a contagion on the debt. The EU could not care less if we starved here.
Ireland will have to default, it's that simple. the government growth forecasts over the 4 year plan are the stuff of fairytales. If the bank debt is not made separate and a deal done to reduce it, we are banjaxed completely.
The only reason the ECB have been giving so much money to Irish banks is that, like the rest of us, they have been believing their bull. They then lost patience with them.

It's a source of amazement to me that the heads of these banks, who knew these lies were been told, and especially the regulator throughout this period are not in jail.
Remember when they blanket bank guarantee was given I think the figure put out on the Anglo debt was 100Million Euro, after the guarantee turning to 4 billion (ending up at 34Bn of course). They made suckers out of the government. 
Funny thing is the EU and are as inept, so this has some way to go yet.


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## Lightning (28 Dec 2010)

Troy McClure said:


> Simply wont happen.



I agree, I can't see the ECB can pulling emergency liquidity at the end of quarter 1 2011. 

However, that is exactly what the ECB say they are going to do. Perhaps, the ECB will replace the emergency liquidity with Central Bank of Ireland liquidity or TARP style loans. 



Troy McClure said:


> Ireland will have to default, it's that simple.



The most worrying thing, with regard to the growing emergency liquidity, is the 44 billion that the Central Bank of Ireland have provided to the 6 Irish banks in recent months. We are taxpayers are on the hook for any losses from this and the emergency liquidity to the 6 Irish banks is only likely to grow. 

This is 44 billion on top of everything else. I think there are several ways this can end. Namely, chaotic default or planned sovereign debt restructuring or sovereign quantitative easing and/or currency conversion.


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## WITH_sDsdR_W (28 Dec 2010)

It's 44 billion on top of the Anglo loans from the Central Bank. The real figure is over 80 billion from the Central Bank. Then add in the national debt, the NAMA losses and the inevitable losses from Anglo, the Irish Nationwide and AIB. The dog on the street knows this equals default. 

Is there really any other form of default than a _"chaotic default"_?


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## Lightning (28 Dec 2010)

WITH_sDsdR_W said:


> Is there really any other form of default than a _"chaotic default"_?



Yes. 

The default in Argentina was chaotic. 

Some other Latin America defaults in the 1980's were better planned debt restructures.


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## Savvy Row (7 Jan 2011)

But if the ECB stop funding us, what could happen to deposits? We've heard that the government could freeze accounts - but for how long?


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## horusd (8 Jan 2011)

I think it's highly unlikely that liquidity would be withdrawn. Imagine the contagion effect of effectively closing Irish banks on other weak economies like Portugal, Spain, Greece, Belgium etc. And if deposits were frozen in Ireland a la South American style of default, there would be a run on banks in every Eurozone country and a flight of capital out of the Euro leading to a catastrophic currency collapse. It would also be counter to the whole policy of the ECB of not letting European banks collapse, that inccidently led to us HAVING to bail out the likes of Anglo and the other shisters. On that point, given their insistance that no EU bank fail and given that they are OUR central bank, I see no reason why they are'nt liable for all our bank rescues instead of putting it on the backs of Irish taxpayers. The FF/Green gov.t were certainly complicit in agreeing to enforce ECB policy in this regard, but I don't think the ECB can walk away from its hand in the whole affair.


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## thewatcher (8 Jan 2011)

I'd say at this stage the ECB are just sick of being fed a line by ff, they tried to get away with just replacing deposits with emergency liquidity until the ECB put a stop to it, people have lost total confidence in the current Irish banking system, we keep hearing about fundamental reform , but apart from a few top heads going off into the sunset nothing has happened because ff don't want to upset the homegrown bankers who have facilitated them for the last 20 years. The only way you are going to restore confidence at this point is the complete clearout of all boards, senior and headquarters middle management and selloff's to european banks, as that entails stepping on a few toes , we will see delay delay delay until the election. There will probably be no deposits left by then anyway.


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## horusd (8 Jan 2011)

A couple of things strike me about this whole mess viz a viz  the ECB/EU.  

1. The decision to NOT allow an EU bank to fail which has had disasterous consequences strikes me as being at least partially a political decision beyond the ECB's remit. 

2. Whilst we had a massive failure in Irish regulation, the ECB as our Central Bank also failed in it's regulatory oversight role. I recall a headline in The Economist around 2004/05 calling Ireland the wild West - do the ECB not read the Economist or have access to financial information?  If they didn't they should have, and if they did and failed to act (ditto our regulator) they failed to do their job.

3. If the ECB CANNOT or will not  continue liquidity to a relatively small economy's banks, then it follows that they cannot/will not support the whole system, or even a larger economy like Spain.  A failure/refusal to act in IRL will precipitate a massive collapse imo.

4. The ECB as OUR Central bank has a duty to us as EU citizens. It cannot logically ctreat us differently than any other part of the union (altho they might try to). A failure to protect us undermines them and the Euro in every Eurozone country and beyond.

5. The EU political system has failed miserably to handle this crisis well, and it's failure is at the core of the problem imo.


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## farmerette (8 Jan 2011)

Wig said:


> I read on Bloomberg that the ECB will pull liquidity to banks in March 2011 ??? I have also read that the ECB are getting increasingly angry at the Irish govt. Over 30% of all ECB liquidity goes to Irish banks despite our tiny size.
> 
> My questions are simple, what would happen to the Irish banks when the ECB pulled liquidity to the Irish banks? Why is the ECB giving so much more money to Irish banks in recent months? Where will Irish banks get the money to pay 150 billion back to the ECB ?


 
why on earth would the ECB be angry with the irish goverment , we took one for the team and saved all the large german , french and british banks who were up thier necks in lending to our zombie banks


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