Comments on: The Flow Approach to the Banking Crisis http://www.irisheconomy.ie/index.php/2009/05/25/the-flow-approach-to-the-banking-crisis/ Thu, 17 May 2012 00:05:58 +0000 http://wordpress.org/?v=2.6.3 By: Oliver O'Shea http://www.irisheconomy.ie/index.php/2009/05/25/the-flow-approach-to-the-banking-crisis/#comment-8053 Oliver O'Shea Tue, 26 May 2009 15:01:45 +0000 http://www.irisheconomy.ie/?p=2300#comment-8053 Brian, No, am not double-counting - I removed the value of general provisons already included in Tier 2 from the provision balance inlcuded in the first line of the table. My overall aim was to try and calculate how much pain (i.e. loan write-offs) the banks can take and still remain solvent. This bad debt proportion of gross loan advances at the end of the last financial year (i.e. Dec 2008 for AIB, IN, Sept 2008 for Anglo and March 2009 for BoI) includes all of the provision reserves currently sitting on bank B/Ss as well as surplus capital. For this specific purpose, there is no difference between equity capital and a provision - both are there to absorb loan write-offs. The amount available also obviously is augmented by any pre-tax profits earned over 2009 and 2010. Brian, No, am not double-counting - I removed the value of general provisons already included in Tier 2 from the provision balance inlcuded in the first line of the table.

My overall aim was to try and calculate how much pain (i.e. loan write-offs) the banks can take and still remain solvent. This bad debt proportion of gross loan advances at the end of the last financial year (i.e. Dec 2008 for AIB, IN, Sept 2008 for Anglo and March 2009 for BoI) includes all of the provision reserves currently sitting on bank B/Ss as well as surplus capital. For this specific purpose, there is no difference between equity capital and a provision - both are there to absorb loan write-offs. The amount available also obviously is augmented by any pre-tax profits earned over 2009 and 2010.

]]> By: Brian Lucey http://www.irisheconomy.ie/index.php/2009/05/25/the-flow-approach-to-the-banking-crisis/#comment-8037 Brian Lucey Tue, 26 May 2009 10:00:27 +0000 http://www.irisheconomy.ie/?p=2300#comment-8037 @Oliver It will however be spun as such (prudential), no? And if they are in Tier 2 are you double counting? @Oliver
It will however be spun as such (prudential), no? And if they are in Tier 2 are you double counting?

]]> By: Oliver O'Shea http://www.irisheconomy.ie/index.php/2009/05/25/the-flow-approach-to-the-banking-crisis/#comment-8005 Oliver O'Shea Mon, 25 May 2009 18:54:09 +0000 http://www.irisheconomy.ie/?p=2300#comment-8005 The purpose is to measure the amount of capital available against which to writedown gross loans - this includes (future) bad debt provisions. I am not trying to measure prudential capital. My calculations also recognise the fact that general provsions are already included in Tier 2. The purpose is to measure the amount of capital available against which to writedown gross loans - this includes (future) bad debt provisions. I am not trying to measure prudential capital. My calculations also recognise the fact that general provsions are already included in Tier 2.

]]> By: Brian Lucey http://www.irisheconomy.ie/index.php/2009/05/25/the-flow-approach-to-the-banking-crisis/#comment-7976 Brian Lucey Mon, 25 May 2009 13:23:09 +0000 http://www.irisheconomy.ie/?p=2300#comment-7976 Id be very interested to see why included in the capital base is the "future bad debt provision". AIB report core tier 1 of 9.9b (p34) ; BOI report core tier one of 6.6b (p2). Given the reports today of Anglo there seems little hope that the Tier 1 capital can be recouped. So we are, I suggest, down at least 22b from the table above. Bad debt provisions can only be counted, afaik, when they are undone and the general provision reduced. Id be very interested to see why included in the capital base is the “future bad debt provision”. AIB report core tier 1 of 9.9b (p34) ; BOI report core tier one of 6.6b (p2). Given the reports today of Anglo there seems little hope that the Tier 1 capital can be recouped. So we are, I suggest, down at least 22b from the table above.
Bad debt provisions can only be counted, afaik, when they are undone and the general provision reduced.

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