DUBLIN (Reuters) - Anglo Irish Bank and Irish Nationwide Building Society were behind the spike in emergency borrowing from the European Central Bank as they seek a speedy sale of their deposit books, a source told Reuters on Saturday.
The two troubled lenders, at the heart of Ireland's financial crisis, are selling deposits and corresponding assets as part of a wind-down of their operations under an EU/IMF bailout deal.
To ensure a sale within the next week, they have had to withdraw the underlying assets, around 15 billion euros ($20.5 billion) in state-backed IOUs, as collateral from the normal week-long ECB borrowing facility and swap them instead for emergency overnight loans, the source, who is familiar with the sales process, said.
"If they are tied up in the normal monetary operations they can't be sold," said the source, who declined to be identified.
The source said the spike in ECB overnight funding, which caused a stir across European markets this week, could continue even after a sale because the buyer of the deposits, expected to be a bank in Ireland, would have to wait until the next ECB weekly refinancing operation to switch out of the more expensive overnight facility.
"It's possible this spike in overnight borrowings could last for a couple of weeks," said the source. "The buyer may continue to put the assets in the overnight facility until the next normal refinancing operation on a Tuesday."
ECB overnight borrowings hit more than 16 billion euros on Friday, the highest amount since June 2009 and well above the 1.2 billion euros which banks were taking before the figure first jumped on Thursday.
Anglo Irish, the poster child for the reckless lending that sparking Ireland's financial crisis, has 11 billion euros in customer deposits deposit book after losing 16 billion euros in mainly corporate deposits last year.
Irish Nationwide Building Society has deposits of 5.3 billion euros at the end of 2009, it has not yet reported for 2010.
Under the EU/IMF deal, Ireland has pledged to shut down Anglo Irish and Irish Nationwide and shrink its other lenders to reduce their dependence on emergency funding from the ECB and its own central bank.
(Reporting by Carmel Crimmins)
