An excellent article (appropriately titled) Threadbare from The Economist reports that Ireland’s banks have been unable to access wholesale capital markets, while corporate deposits have been fleeing abroad at an alarming rate in the past few weeks.
This has left the banks increasingly reliant on short-term loans from the European Central Bank (ECB), funding a sizeable fraction of their assets this way. For now they, like all euro-zone banks, have access to the central bank’s funds at its main interest rate (1% at present) for up to three months. But the ECB’s rate-setting council would like to tighten the terms soon. The ECB is said to have pressed Ireland to avail itself of aid from the euro zone’s rescue fund, created earlier this year, to reopen market financing for its banks. Investors fret that Ireland’s banks might need yet more support if a weak economy spurs a wave of further defaults on property loans.