Not so much a fast-crash Bank Run (yet), as a brisk walk to the Emergency Exits. The following quotes are from Nobel Prize winner Paul Krugman, Fortune Magazine, ZeroHedge, Bank of America, and Mike Shedlock.
Is a bank run about to bring Europe to its knees?
Some market watchers say yes, pointing ominously to the torrents of money pouring out of Ireland.
Irish bank deposits declined in November for the fourth straight month, the central bank said last week. Overseas deposits fled the country at their fastest pace in more than a year.
The deposit flight compounds the stress on a financial system whose massive property-lending losses already have driven the government to accept an unpopular bailout from the European Union and the International Monetary Fund.
Worse yet, it shows that the solutions policymakers slapped together in the fall of 2008 helped in some cases to create even bigger problems — ones that are now coming due.
Unconditionally guaranteeing bank deposits is just such a policy, in a country where loan losses made the banks insolvent, job loss left many taxpayers penniless and deposits now at least double annual economic output…
“Facing facts like these, each morning when I wake up I have to wonder, ‘Why is today not a good day for a wholesale run on the Irish banking system?'” asks Scott Minerd, chief investment officer at Guggenheim Partners. “And if there is a wholesale run on the Irish banking system, then what stops the same scenario from cascading into Portugal, Greece, Italy, and most importantly, Spain?”
That is very much the question being asked in bond markets…
From Paul Krugman at the New York Times – This Is The Way The Euro Ends:
Not with a whimper but with a bank run…
I used to be a full believer in the Eichengreen theory of euro irreversibility, which said that no nation could even discuss leaving the euro, because it would lead to the mother of all bank runs. But… the Eichengreen argument is a reason not to plan on leaving the euro — but what if the bank runs and financial crisis happen anyway? In that case the marginal cost of leaving falls dramatically, and in fact the decision may effectively be taken out of policymakers’ hands.
So what the FT is reporting is that there’s a sort of slow-motion run on Irish banks in progress, with corporate depositors gradually reducing their accounts.
From the Financial Times (requires email registration for limited views per month – but you can also use a disposable email services such as at yopmail or mailinator) – Threat from bank funding constraints:
The Irish have always been known for their sense of humour. It is good to know Brian Lenihan, Ireland’s finance minister, has not lost his.
In the country’s latest battle to avoid a strong-arm bail-out of by the European Union and the International Monetary Fund, Mr Lenihan on Wednesday said Ireland’s banks had “no funding difficulties”.
The facts tell a different story. Were it not for the European Central Bank’s emergency liquidity programme, many banks would have virtually no funding at all.
Remember: there is a difference between guaranteeing ordinary depositors, and bailing out the private gambles of European banks, who made a bet on Irish banks, in the euro-pumped property casino (which is essentially what the IMF/ECB deal is doing – and we pay for the privilege!)
From ZeroHedge.com, (quoting a Bank of America report, by Jeffrey Rosenberg) – On That Accelerating Irish Bank Run…:
Having absorbed the Irish banking system risk, sovereign liquidity risk reflects banking liquidity risks. Those risks are on the rise following the inability of banks to tap the market for government guaranteed issues and ECB funding increasingly has been required to fill the gap… As was the case in Greece, deposit flight stands as the short term catalyst to ultimately force a liquidity intervention.
Deposit flight from Ireland accelerated in September, the latest month available, to a 3.6% annual rate. Clearly, with market prices eroding since then it is probable that deposit outflows continued in October and November. Under such a scenario we would expect a liquidity intervention solution to be forced by the threat of further liability funding pressure that would result from such deposit flight. That would mark a short run liquidity solution to a long run solvency problem…
…postponement does not equate to a solution and while such an outcome may be near term supportive of asset prices, that outlook should not be confused for a longer run positive outlook.
Also via ZeroHedge, (quoting a Reuters report) – As Irish ECB Borrowings Surge, The Country’s Bank Run Picks Up Speed:
Deposits from the Irish resident private sector were 6.7 percent lower on a year-to-year basis in November, separate figures showed.
Allied Irish Banks (ALBK.I), which Ireland effectively nationalised last week, said last month that it had lost 13 billion euros in deposits since the end of June.
Larger rival Bank of Ireland (BKIR.I) shed 10 billion euros of deposits in the third quarter while bancassurer Irish Life & Permanent (IPM.I) said it had suffered a 600 million outflow in the same period.
‘Imagine You’re Irish’
To help explain why I believe a broader financial crisis is coming to Europe, let me start with a quick story. Imagine for a moment that you’re an Irish citizen. Needless to say, you have many concerns about your country’s economic situation…
… to put this into perspective, the situation facing the Irish government is akin to waking up everyday only to realize that one-third of your salary is gone before you even think about paying for the necessities of life.
Fiscally, everything is heading in the wrong direction in Ireland. However bad it may be, the country’s solvency is a secondary concern. If you’re an Irish citizen, the more pressing issue is what you’re going to do about your banking deposits. Your domestic Irish bank posted a 2.4 billion euro net operating loss in 2009 and is projected to nearly double its losses in 2010. The entire domestic Irish banking system has essentially failed, but the government wants you to believe that everything is fine. After all, the International Monetary Fund, the European Central Bank, and the European Union member countries have cobbled together an 85 billion-euro rescue package of which approximately 35 billion euros is set aside for the banking system.
In addition to the bailout, the Irish government has assured you that it will guarantee your deposits, therefore, there’s no need to worry.
Then you get a hold of the Central Bank of Ireland’s most recent Credit, Money, and Banking report (publicly available on the internet). You see that total deposits for Ireland’s dwindling base of domestic credit institutions were roughly 496 billion euros as of October 2010. Some quick math tells you that this is more than three times Ireland’s GDP, and 14 times the scope of the current banking system bailout package. You start to wonder, “If I try to get my money from the bank at the same time everyone else does, where is the government going to get the euros to pay everyone?” You can’t think of an answer. Then you start to feel silly. “Why am I even bothering with all this worry?” you ask yourself. “I’ll just go down to the bank and take my money out now before things get worse. I can give it to a multi-national bank and sleep better at night.”
It seems trite, but this little scenario is essentially what’s happening today. The Irish banking system is literally experiencing a run on its banks. According to the most recent banking update from the Central Bank of Ireland, total deposits in Irish banks declined more than 5 percent (28 billion euros) between August and October alone.
Happy New Year?