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Thursday, November 11, 2010

Ireland: Bank funding problems?

by Calculated Risk on 11/11/2010 10:19:00 AM

Ireland is fully funded until mid-2011, however I've heard this morning that certain European investors are no longer willing to provide Irish banks with overnight funding. This could lead to a serious liquidity problem for the Irish banks - and some investors believe that Ireland may need to borrow from the IMF or the EFSF to support the banks.

And some comments from officials, first from the Financial Times: Barroso reaffirms offer of help to Ireland

José Manuel Barroso, European Commission president, said ... “What is important to know is that we have all the essential instruments in place in the European Union and eurozone to act if necessary, but I am not going to make any speculation”.
excerpt with permission
Both the Irish Central bank governor Patrick Honohan (See: IMF would use same fiscal policy - Honohan) and the Irish Finance Minister Brian Lenihan said today they believe Ireland will not need help (See: Irish FinMin: comments not laying ground for help).

The Ireland 10-year bond yield is at 8.9%.

For much more on the problems for Ireland (and Portugal), see: Life on the Edge of the EFSF, by Elga Bartsch & Daniele Antonucci at Morgan Stanley.

Note: I've been using the 8% cost estimate for the EFSF from Wolfgang Munchau in the Financial Times. The Morgan Stanley analysts write that they "expect such a loan to carry an interest rate of 5-6.5% per annum".

This is similar to the 6% EFSF rate calculated by University College Dublin professor Karl Whelan: Borrowing Rates from The EFSF