You have to give it to the Irish, they always figure out a new way to get around a funding obstacle in their path.  When this crisis started back in 2008, they were the first to guaranty bank deposits.

When the crisis double dipped in the fall of 2010, Ireland was the first to have its own Central Bank generate electronic Euro credits, with no debt sales behind them.

Today, we find out about a new funding source the Irish have invented.  They have setup a circular funding cabal.  Bank A issues X Billion in new unsecured debt using a Sovereign guaranty they extracted from the system.  Bank B which also has a sovereign guaranty buys that debt, and takes it to the ECB as collateral.  The ECB accepts it, and provides new credits to the bank.

The Irish Times has a great article on the process.

IRISH BANKS are issuing bonds to themselves under the Government guarantee to borrow cheaply from the European Central Bank and to avoid drawing more heavily on emergency lending from the Irish Central Bank.

Four banks issued bonds worth €17 billion to themselves last month under the Government’s extended guarantee, the Eligible Liabilities Guarantee, to use as collateral to borrow from the ECB.

“What you have here is micro-quantitative easing, or money printing,” said Cathal O’Leary, head of fixed-income sales at NCB Stockbrokers. “The banks are issuing unsecured loans to themselves.”

Bank of Ireland issued the largest amount, €9 billion, on four bonds on January 26th. AIB issued €2.63 billion on January 25th, Irish Life and Permanent €3.1 billion the following day and EBS building society €1.7 billion on January 28th.

Bank of Ireland raised a further €980 million on another bond on February 10th.

The article is a must read in my opinion.  It also pointed to the fact that Irish banks have borrowed $126 Billion from the ECB directly.  This makes up 25% of all ECB loans in the euro zone.  The other major takeaway was that $51.1 Billion in Exceptional Liquidity Assistance (ELA) on non-eligible ECB collateral.

This brings known loans to Irish banks to $177 Billion before the new round robin bank debt loans are counted.  Additionally, someone has tapped the ECB over night for $15 billion in emergency liquidity.

While all eyes are on the unzipping of the interlocking totalitarian regimes in the Middle East, the crisis in Europe is quietly heating up again.  It appears that Ireland will be the fulcrum the moves the ECB and Euro crisis into higher gear.  The reality of the situation continues to get worse, even if the focus is not there.