Inside Ireland’s secret liquidity | FT Alphaville

Inside Ireland’s secret liquidity

A tidy scoop from RTE, who’ve uncovered key Irish government documents setting up Emergency Liquidity Assistance to banks:


But it’s largely all there, focused on the critical period leading up to and after Ireland’s bailout, when there was a great deal of concern about Irish banks haemorrhaging ECB-eligible collateral and going for loans (or repos) from their own central bank.

Mostly the documents help to fill in the blanks of ELA dynamics that we knew about, such as the role of ABS credit ratings downgrades at the ECB. These sent Bank of Ireland, and it now seems Irish Life & Permanent, to borrowing even more from the national central bank.

However, and perhaps we’re still naive, we are still struck by the apparent ease with which the finance minister penned “letters of comfort” to the central bank, basically to cover ELA losses from a state guarantee (or was it “intention”?) to make the bank good.

The letters provide collateralisation in the last resort if other assets are pledged by banks, or sometimes in the first resort, as is the case with promissory notes or the facilities of deed. Just about every document mentions the letters, which the central bank does appear to have asked for in advance of borrowings in some places.

We’re a long way from this advice in an Irish government plan for dealing with a financial crisis, dated February 2008, aren’t we?:

Related links:
Irish central bank comfort – Corner Turned
Letters of comfort – Irish Department of Finance (1984)