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Banking Crisis

Good banks

I realise that at this stage it is probably academic over here, since the government seems to have decided to do whatever it is that it is going to do. But: what did people think of this suggestion, again (a) in general and (b) in the Irish context?

6 replies on “Good banks”

Hmm, ‘creating’ good banks? It sounds like a scheme that would only work if the people in charge were very, very clever about who they appoint to run them. Perhaps give pat honohan a bank??

I think this idea is an essential part of the solution. However, thought should be given to the optimal structure of these “good banks”. Their internal reward systems, regulatory obligations, license transferability and permitted business activities should all be set so as to protect the public and deliver a sustainable banking system for the long-term. Also, such the introduction of “good banks” should probably be agreed and co-ordinated internationally across relevant countries.

The key to make this work would be to ensure that the Board was appointed on merit, the ceo wage was not related to the amount of loans, the deposit to loan ratio was high and that any news loans were given on a commerical, not political, basis.

I’d rather see ‘good banks’ than ‘bad banks’! Although rather than going to the expense and massive work of starting a whole new bank it may be better to support existing stronger banks.

I think this is part of a good idea. But the key is banking innovation. It’s not just a matter of where banks are now – you have to look at where we want banking to go over the next twenty years. It is interesting to look at Shinsei (http://www.google.ie/search?hl=en&safe=off&rlz=1B2DVFC_enIE219IE219&q=shinsei+bank&btnG=Search&meta=&aq=t) in Japan. It was a ‘bad bank’ which was bought by private investors and was successfully turned into a substantial consumer and business bank. Some of the potential investors that have been mentioned for Irish banks were also involved in this one.

[…] Kevin already posted a link to Willem Buiter proposing something like this but the idea is now being given wider prominence. Here for instance is a nice clearly-written piece from today’s Wall Street Journal by Stanford’s Paul Romer.  An important benefit of this type of plan, as Romer notes, is that it seems more likely to attract additional private sector equity capital relative to the various plans to attract new investors for existing banks with failed management and murky balance sheets. Indeed, I first read about the idea of new banks in this 2009 predictions piece from celebrity uber-bear bank analyst Meredith Whitney and she was focusing purely on the private sector opportunities. She said:  “I think you’ll see more new banks created. We’ve already seen more applications. And it’s a great idea: You start with a clean balance sheet and make loans today with today’s information. Plus, right now you’ve got a yield curve that’s good for lending.” […]

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