Joan Burton (Dublin West, Labour)
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Question 97: To ask the Minister for Finance if his attention has been drawn to the fact that there was a fall of 10% in the amount that Irish residents held in their current accounts between August 2007 and August 2008 from €32,857 million to €29,601 million, that there was a 12.6% fall in their demand deposits over the same period from €29,601 million to €25,733 million, that overdrafts increased by €1.1 billion over this period while overnight deposits declined by almost €1 billion and that these figures indicate a picture of a rapidly shrinking money supply in the Irish economy and indicate that borrowers in the Irish economy will soon be unable to service their loans while small businesses will face serious cash flow problems; the action he will take to address this crisis of liquidity in the Irish economy; and if he will make a statement on the matter. [39048/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The figures quoted by the Deputy mainly relate to retail clearing credit institutions, which is a group of four banks. Looking at the situation for all Irish credit institutions, which mirrors developments in the sub-set mentioned above, the amount of deposits held by Irish residents in overnight deposit accounts between September 2007 and September 2008 declined by 12.9 per cent. However, this was more than counterbalanced by the increase in term accounts of 22 per cent, or €18 billion. This would suggest that Irish people may be moving their deposits from overnight deposits, which generally offer low interest rates, into accounts with much higher interest rates, such as those with an agreed maturity.

The Central Bank informs me that the amount of credit accounted for by overdrafts can be quite volatile. Their statistics show that over the year to August 2008, overdrafts for households increased by €512 million, but decreased by €63 million for non-financial corporates.

There is no doubt that banks faced a harder task of raising funds over the past twelve months, due to the difficulties in interbank money markets. However, analysis of credit institutions' balance sheets show how banks have adapted to this by accessing different sources of funding. For example, borrowing from the European Central Bank has increased, which shows that Irish credit institutions have adequate collateral to draw down this form of lending. Decisive action to protect the stability of the economy and its financial system was taken by the Government with the introduction of the Scheme made under the Credit Institutions (Financial Support) Act 2008. The extended international credit crunch which we have experienced has brought home to all of us the pivotal role of the financial system in the economy and in the day-to-day lives of ordinary people. An important aim of the Guarantee Scheme the Government have introduced is to ensure that we have a banking system that as a whole works effectively, efficiently and competitively in facilitating all the day-to-day ordinary economic transactions of commercial, business, family and social life. The scheme therefore includes the application of strict terms and conditions on covered institutions to ensure that the public interest, which includes the general consumer and small business sector, is paramount.

By putting the Guarantee Scheme in place the Government is helping to ensure that financial institutions continue to play their proper role in facilitating economic activity and enterprise and important financial transactions of households.