Month: May 2009

Thoughts on Fine Gael’s Bank Plan

Post author By Karl Whelan
Post date May 15, 2009

As Patrick Honohan has noted often in his recent contributions, despite the confusion prevailing in Ireland today about our banking problems, there is wide agreement among banking experts about what constitutes best practice when dealing with banks that are either insolvent or failing to comply with capital adequacy regulations. Regulators seize the bank, place it into administration and the bank’s assets are used to pay off depositors first with bondholders getting paid off if there is anything left.

In our current circumstances, the almost-blanket guarantee on liabilities agreed on September 30 prevents such a solution from being imposed now on the covered Irish banks. I interpret Fine Gael’s new plan as an attempt to achieve an FDIC-style resolution while sticking within the restrictions imposed by the guarantee.

Categories In Banking Crisis
Tags FG banking plan, NAMA, Nationalisation
77 Comments on Thoughts on Fine Gael’s Bank Plan

Recovery Scenarios from the ESRI

Post author By Philip Lane
Post date May 15, 2009

The ESRI has released a scenario analysis by which the path of economic recovery is primarily driven by recovery in the world economy: you can find the paper here.

Categories In Economic Performance
Tags ESRI recovery scenarios
15 Comments on Recovery Scenarios from the ESRI

Boston Fed Paper on Foreclosures

Post author By Liam Delaney
Post date May 14, 2009

A recent Boston Fed working paper examines the rationale for government intervention to subsidise mortgage mitigation. The paper is sceptical about the benefits of this approach and they conclude the following:

“An important implication of our analysis is that policies designed to reduce foreclosures should focus on ameliorating the immediate effects of job loss and other adverse life events, rather than modifying loans to make them more “affordable” on a long-term basis”.

http://www.bos.frb.org/economic/ppdp/2009/ppdp0902.pdf

I would respectfully call on our own Central Bank to start producing and publishing this type of research and my apologies to them if they already have and I am not aware of it. I am basing my belief that this research is not in circulation from looking in detail at the publications section of the Central Bank website. In general, I cannot find any good publications written in the Irish context on the implications of falling house prices on household financial positions and the policy issues associated with this. These policy issues are clearly different in Ireland than in the United States due to very different legal methods for dealing with mortgage default. We need a document though that spells out the different options available if a sizeable proportion of mortgage holders in areas where values have plummeted (and may never recover) start being unable to make their repayments. I am aware that all sorts of arrangements are currently being used in individual cases but this is hardly a substitute for a fully outlined statement of policy options that could be debated on forums like this and by smaller groups of experts.

To date, Ronan Lyon’s two blog posts seem to be the most sophisticated data analyses of negative equity and related issues in the Irish context. I cannot see how the monetary economists working in Ireland can claim to have a full grasp of the current situation without an understanding of these micro-features. I have absolutely no axe to grind here and I look forward to being shown the error of my ways.

Central Bank Publications Page