It is ironic that one of our main goals in Ireland is to gain access to these wholesale markets again as quickly as possible! However, as Paul Krugman remarked, the actions that might have prevented disaster are not necessarily actions that will help you get out of disaster.
Patrick Honohan’s note also show the role of rapid balance sheet expansion in the case of Irish banks. Wholesale funding is typically more expensive and reprices much more rapidly than sticky deposit funding.
Irish banks had such an dependence on wholesale funding, not because they wanted to but because the had to.
Why? To keep the earnings per share growth going.
Ultimately, and this may not be a shared opinion, I do not have any sympathy for professional investors in any bank, including Irish ones.
Looks like the establishment spin machine is in full flight today. A few gems-
Alan Aherne on nationalisation in the Indo
Speaking on Newstalk radio, he said it would be possible to nationalise AIB and Bank of Ireland by issuing ‘dead-of-night’ Bills, in the same way Anglo Irish Bank was nationalised. But this would not be as “costless” as some commentators believed, he said.
“With almost certainty, it would be a very bad outcome. And quite probably, it would be catastrophic. It would not be cheap, by the way – you have to pay off shareholders.”
Since when do shareholders get paid off in insolvent companies?
Brian Lenihan on nationalisation reported in Indo-
“Mr Lenihan said the only country that had nationalised its banking system was Iceland and warned that this would send out a signal to the international markets that our banks were in “great difficulty”.
I thought they were on life support from the ECB and relying on a State guarantee to get any money. He must have forgotten Sweden, Finland etc.
Maybe those international guys don’t read.
Brian Lenihan writing in the Indo “We cannot afford crude guesswork from critics in this vital NAMA debate”- “NAMA will make it easier and less costly for banks to fund themselves from international markets This is a crucial issue because Irish banks rely heavily on foreign providers of funds, in part reflecting the openness of the Irish economy and the fact that lending outpaced growth in domestic deposits during the boom. But NAMA goes a step further in improving the funding position of banks by increasing their access to borrowing from the European Central Bank…”
So NAMA will get the banks additional life support from the ECB. Does BL seriously believe that the banks will be able to resort to their old ways and borrow wholesale internationally post NAMA without a Gov. guarantee. should he be encouraging practices that got us into the mire in the first place. The Canadians avoided this trap.
RV
I agree that this was one of the causes. Banking of this nature, frb, inherently creates a bubble of some sort. The worst sort is when it involves domestic and commercial properrty mortgages!
Australian banks, you will all be pleased to hear, are also sound. Even MacQuarrie seems to have survived, but maybe later? That is despite Australian property having the least, LEAST, affordable profile on the planet, for the last decade or more. How come? Maybe it is the banks that are the source of the problem and not property?
So why are you all so keen that NaMa is brought into being? Will it save banks? No. They are all doomed anyway. One bank of moderate size may survive. NaMa is just the most expensive way of achieving this!
So, wholesale floating rate euribor = bad, deposits = good?
5 replies on “The Resilience of Canadian Banks”
It is ironic that one of our main goals in Ireland is to gain access to these wholesale markets again as quickly as possible! However, as Paul Krugman remarked, the actions that might have prevented disaster are not necessarily actions that will help you get out of disaster.
Patrick Honohan’s note also show the role of rapid balance sheet expansion in the case of Irish banks. Wholesale funding is typically more expensive and reprices much more rapidly than sticky deposit funding.
Irish banks had such an dependence on wholesale funding, not because they wanted to but because the had to.
Why? To keep the earnings per share growth going.
Ultimately, and this may not be a shared opinion, I do not have any sympathy for professional investors in any bank, including Irish ones.
Looks like the establishment spin machine is in full flight today. A few gems-
Alan Aherne on nationalisation in the Indo
Speaking on Newstalk radio, he said it would be possible to nationalise AIB and Bank of Ireland by issuing ‘dead-of-night’ Bills, in the same way Anglo Irish Bank was nationalised. But this would not be as “costless” as some commentators believed, he said.
“With almost certainty, it would be a very bad outcome. And quite probably, it would be catastrophic. It would not be cheap, by the way – you have to pay off shareholders.”
Since when do shareholders get paid off in insolvent companies?
Brian Lenihan on nationalisation reported in Indo-
“Mr Lenihan said the only country that had nationalised its banking system was Iceland and warned that this would send out a signal to the international markets that our banks were in “great difficulty”.
I thought they were on life support from the ECB and relying on a State guarantee to get any money. He must have forgotten Sweden, Finland etc.
Maybe those international guys don’t read.
Brian Lenihan writing in the Indo “We cannot afford crude guesswork from critics in this vital NAMA debate”- “NAMA will make it easier and less costly for banks to fund themselves from international markets This is a crucial issue because Irish banks rely heavily on foreign providers of funds, in part reflecting the openness of the Irish economy and the fact that lending outpaced growth in domestic deposits during the boom. But NAMA goes a step further in improving the funding position of banks by increasing their access to borrowing from the European Central Bank…”
So NAMA will get the banks additional life support from the ECB. Does BL seriously believe that the banks will be able to resort to their old ways and borrow wholesale internationally post NAMA without a Gov. guarantee. should he be encouraging practices that got us into the mire in the first place. The Canadians avoided this trap.
RV
I agree that this was one of the causes. Banking of this nature, frb, inherently creates a bubble of some sort. The worst sort is when it involves domestic and commercial properrty mortgages!
Australian banks, you will all be pleased to hear, are also sound. Even MacQuarrie seems to have survived, but maybe later? That is despite Australian property having the least, LEAST, affordable profile on the planet, for the last decade or more. How come? Maybe it is the banks that are the source of the problem and not property?
So why are you all so keen that NaMa is brought into being? Will it save banks? No. They are all doomed anyway. One bank of moderate size may survive. NaMa is just the most expensive way of achieving this!
So, wholesale floating rate euribor = bad, deposits = good?
Wonder what NAMA are selling…