The country's banks have been asked to supply weekly instead of quarterly reports on their ability to pay their outgoings as a precautionary measure to assess their exposure to the ongoing turmoil in the financial markets. Simon Carswell, Finance Correspondent, reports.
The Financial Regulator has requested within the last three weeks that all Irish financial institutions provide weekly liquidity reports because of the increased cost of bank borrowing in the international markets caused by the so-called credit crunch.
The crisis in the US subprime mortgage market, in which large numbers of borrowers with poor credit histories have defaulted on their house payments, has squeezed liquidity, forcing up the cost of inter-bank borrowing.
This led to the crisis at Northern Rock that sparked the run on deposits this week.
Like the Irish regulator, central bankers across Europe have stepped up vigilance on the risks facing banks. The Bank of England demands daily liquidity reports from its financial institutions.
"The more regularly they meet, the more worried they are," said one senior Irish banker. "It's a bit like if someone was sick - you just look after them more to make sure they are not getting any sicker."
"It is to try and avoid the situation in the UK occurring here where financial institutions got so stretched that they had to resort to emergency funding," said Stuart Draper, head of research with Dolmen Stockbrokers.
However, the Financial Regulator is not concerned that Irish banks are in any difficulty. Being part of the European Central Bank (ECB) system, Irish banks have access to far greater funds than their British counterparts and have greater flexibility on the criteria by which they borrow money.
For example, Irish financial institutions, unlike British banks, can use their mortgage books as collateral when borrowing from the ECB.
The Financial Regulator is closely assessing the extent to which Irish banks are relying on short-term (weekly) and long-term (three months) borrowing in the inter-bank market.
"They want to see if banks have sufficient cash to meet all of their outgoings for the next week and 90 per cent for the next month," said another senior banker.
The three-month inter-bank rate, at which banks borrow money from one another, has risen to its current level of 4.7 per cent from 3.9 per cent in April, rising sharply since August 9th when the US Federal Reserve and the ECB started injecting funds to improve liquidity in the financial markets.
The credit crunch is continuing to hurt major financial institutions and their global operations.
Europe's biggest bank, HSBC, said yesterday it was closing its US subprime mortgage unit, cutting 750 jobs and writing down $880 million (€625 million) because the business was no longer sustainable.
The credit crisis has also driven private-sector growth in the euro zone to a two-year low this month as new orders plunged, according to the latest European PMI survey published yesterday.
The figures reflect the turmoil in the stock and foreign exchange markets and make any further ECB interest rate hikes this year unlikely.
A spokeswoman for the Financial Regulator said calls to its consumer helpline had returned to normal as the concern among Northern Rock's Irish customers over the security of their deposits had eased.
The regulator said it had received 3,000 calls over the last eight days from concerned depositors and had 8,500 visits to the Northern Rock page on its website. - (Additional reporting, Reuters)