This stabilization confirms one of the critical assumptions underlying the blueprint for saving the financial system. The assumption is that there is a core level of deposits in each bank that are not sensitive to the solvency of the bank, but rather are sensitive to the explicit and implied deposit guarantee.
This core level of deposits together with unlimited borrowing from the central bank ensures that a bank can continue in operation indefinitely regardless of whether it is solvent (market value of its assets exceeds the book value of its liabilities) or not.
BAILED-out banks gained almost a billion euro of ordinary Irish deposits at the expense of foreign lenders in December, new figures reveal.
The boost marks the first time the 'covered' banks' deposit performance has been significantly better than that of other lenders with retail operations here.
But analysts last night stressed that the overall state of bailed out banks' deposits could best be described as "stable" and that there was no evidence vast sums were flowing into the Irish banks.
The latest data shows our bailed-out institutions saw their overall deposits drop by €29bn in 2011, leaving the banks with €154.5bn of customers' cash on their books....
"Deposits aren't flowing in but they have stabilised," Davy's financial analyst Emer Lyons said last night, adding that Irish banks were "still paying very attractive rates".
In a note issued to clients, Goodbody's pointed out that the latest Central Bank dispatches included the "surprise" information that Irish banks had not increased their reliance on European Central Bank funding despite taking three-year money from the ECB in December....
Goodbody's suggested that Irish banks might have extended existing one-year ECB loans to three years rather than drawing brand new money.
"Clearly, deleveraging, as well as stability in deposits is resulting in a lower (albeit still-high) dependence on central bank funding," the note added.