Irish banks buy one-third of NTMA bonds Sunday, May 17, 2009 By David Clerkin, Markets Correspondent Irish banks account for up to one-third of the buyers of Irish government bonds issued by the National Treasury Management Agency (NTMA) since last November, Central Bank figures show. But the banks in turn are using the bonds as collateral for borrowing from the ECB.
NTMA chief executive Michael Somers said last week that he suspected that domestic banks that bought Irish government bonds were going to the ECB shortly afterwards to get cash, using the bonds as security.
‘‘We suspect - and it is only a suspicion - that they would have taken them up and then gone to the Central Bank, rediscounted and got cash for them,” he told an Oireachtas committee.
Alluding to the fact that banks were buying Irish government bonds, he said their dealings in such cases did not represent ‘‘a genuine end investor result’’ - that they w ere not buying government bonds for the same reasons as other investors.
Figures provided by the Central Bank reveal that more than €5 billion of the €15 billion raised from government bond issues between November and March came from local institutions such as AIB and Bank of Ireland.
The total amount of Irish government securities held by Irish credit institutions stood at more than €6 billion at the end of March, up from €520 million last October.
Central Bank data shows that €3.3 billion of the increase came from ‘‘retail clearing’’ banks - a category defined by the Central Bank to include AIB, Bank of Ireland and the foreign-owned Ulster Bank and National Irish Bank (NIB).The Central Bank does not publish the amounts relating to individual institutions.
A further €2.2 billion was acquired by institutions in the ‘‘domestic non-clearing’’ category - which includes Irish Life & Permanent, building societies EBS and Irish Nationwide, and the Irish operations of foreign banks including Bank of Scotland (Ireland) and KBC. This category also includes the recently nationalised Anglo Irish Bank.
Irish banks that buy government bonds are eligible to use the bonds as collateral for funding from the ECB’s emergency liquidity facility, which was launched in response to the wholesale funding crisis that was triggered by the credit crunch.
Banking sources said that the ability of Irish banks to access international funding markets was a major factor in easing the funding pressure on the local economy and that this could be at risk if the main banks were nationalised.
The government could face increased difficulties in securing an appropriate flow of funding into the country if nationalisation took place, they added.
Minister for Finance Brian Lenihan reiterated last week that nationalisation of AIB and Bank of Ireland would be ‘‘a last resort’’, although he admitted it was ‘‘theoretically possible’’ under the framework for establishing the National Asset Management Agency (Nama), which will take on bad property loans from the main lenders.
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