Mervyn King: governor

The Irish banking system reached new levels of stress as the Bank of England made available a new £10bn (€11.8bn) facility to replace deposit outflows from Dublin banks' units in the North and in Britain. TCD Professor Brian Lucey said the so-called swap agreement, which the European Central Bank said was established as a precautionary measure only, was none the less "unprecedented" and showed that "even more pressure" was building for Irish banks.

"What it shows is that stress is building to new levels. The capitalisation and liquidity issues facing the banks here have become intertwined. As deposits flow out, it may require another round of capitalisations," said Lucey.

The funds are an increase of €10bn in a month in exceptional cash the Central Bank of Ireland had pumped into Irish banks by the end of November because of an apparent continuing outflow of deposits.

That sum excludes additional liquidity provided by the European Central Bank because the Irish banks cannot raise their week-by-week cash requirements from the usual interbank markets as other banks do not want to deal with them.

Analysts believe the end-December figures will show another large outflow of deposits and another large increase in emergency funding.

Another senior economist, who did not wish to be named, said the Bank of England facility was "a lot of money" that could be made available in quick time to replace the sterling deposits taken out by customers of Irish banks. It meant the Central Bank of Ireland could access the cash quickly for the Irish banks without disrupting currency markets, he said.

Late last month the EU and IMF announced that an additional €10bn would be pumped into the system in capitalisation cash to make good the loan losses of the Irish banks and a further €25bn would be available on a "contingency" basis. But the scale of the outflow of deposits remains worrying for the authorities, analysts say.

The £10bn swap agreement expires at the end of September 2011.