Irish banks will have to supply weekly reports on their ability to pay their outgoings until at least the end of the year as the Irish Financial Services Regulatory Authority continues to assess their exposure to the credit crunch.
The financial regulator had initially informed the banks that it would continue seeking weekly instead of quarterly liquidity reports until the end of this month. However, the regulator has since decided to seek weekly reports until the end of the year, maintaining its heightened vigilance over the State's banks.
In normal circumstances, banks only have to provide quarterly liquidity reports. However, the regulator demanded weekly reports in August after the inter-bank rate, at which banks borrow money from one another, rose sharply due to the market turmoil caused by the US subprime mortgage crisis.
The crisis began when large numbers of borrowers with poor credit histories defaulted on their payments in the US mortgage market. This drove up the cost of credit, freezing liquidity in the international money markets.
The financial regulator's decision to continue with weekly reporting is a precautionary move to assess the extent to which Irish banks are relying on short-term (weekly) and long-term (three-month) borrowing.
Banks must show the regulator that they have sufficient cash to meet all of their outgoings for the next week and 90 per cent for the next month. All banks carry out their own internal daily liquidity reports. Some banks had been providing monthly reports to the regulator before the demand for weekly reports.
The three-month Euribor interbank rate has jumped from 4.26 per cent at the start of August to its current level of 4.6 per cent, driving up the cost of borrowing in the international markets.
The regulator has, like many central banks across Europe, stepped up vigilance on the risks facing banks. Irish banks have more secure liquidity arrangements than their British counterparts because they can borrow from a much larger reserve of cash held by the European Central Bank. Unlike the British banks, they can also use their sizeable mortgage books as collateral.
Since the credit crisis hit in August, Irish banks have borrowed more through the longer-term (three-month) refinancing operation than through the main refinancing (overnight) operation, a reflection of the higher costs in the interbank market and more precautionary borrowing in the current financial climate.
Credit rating agency Fitch said in a report published earlier this month that none of the Irish banks had "any immediate funding concerns and their current funding position has clearly benefited from the timely introduction of new liquidity regulations and the work on stress testing".
It said Irish banks were "being proactive in planning for at least a medium-term dislocation of the market and are taking a conservative view of when and how the situation will improve".
