The European Central Bank has expressed alarm that Ireland’s bank rescue plans could jeopardise assets put up as collateral in its liquidity providing operations.
The euro’s monetary guardian has “serious concerns” that rushed laws prepared by Dublin could affect actions taken by Ireland’s central bank and other monetary authorities in the eurozone, according to position paper posted on the ECB’s website.
The warning reflects ECB concern at the risks involved in providing liquidity to Ireland’s banks. The most recent data show Irish banks having €136bn in loans outstanding from the ECB – a quarter of the total in the eurozone – and €45bn in emergency liquidity assistance from the Irish central bank. To obtain liquidity, eurozone banks have to put up assets as collateral.
The ECB’s concern is to ensure it always holds enough collateral of sufficient quality to minimise its exposure were some of the massive amounts of liquidity it provides not to be paid-back.
The opinion says “the ECB has serious concerns that the draft law is insufficiently legally certain on a number of critical issues for the eurosystem [of eurozone national central banks].” One such issue was “the scope of collateral rights of central banks given as security against emergency liquidity assistance”.