Month: August 2009

BIS on Financial Sector Rescue Programmes

The BIS has released a new comparative study of the impact of the different types of financial sector rescue programmes pursued across countries: you can read it here.

Abstract:

We analyse the wide array of rescue programmes adopted in several countries, following Lehman Brothers’ default in September 2008, in order to support banks and other financial institutions. We first provide an overview of the programmes, comparing their characteristics, magnitudes and participation rates across countries. We then consider the effects of the programmes on banks’ risk and valuation, looking at the behaviour of CDS premia and stock prices. We then proceed to analyse the issuance of government guaranteed bonds by banks, examining their impact on banks’ funding and highlighting undesired effects and distortions. Finally, we briefly review the recent evolution of bank lending to the private sector. We draw policy implications, in particular as regards the way of mitigating the distortions implied by such programmes and the need for an exit strategy.

Exchequer Cost of NAMA and the Social Dividend

There has been understandable focus on what NAMA will pay for distressed assets, and the risk of over-payment. This is the biggest component in considering the broader problem of re-constructing the banking system at minimum cost to the Exchequer, but it is not the only one.

Excess Exchequer cost could also be incurred if NAMA comes under pressure to dispose of assets on anything other than best commercial terms, and this pressure has already commenced. A ‘social dividend’ from NAMA has been suggested, notably by ICTU president Jack O’Connor. Mr. O’Connor called on RTE radio on Friday for the State’s newly-acquired property portfolio to be deployed in the provision of schools, sports facilities and health centres. There seems to be some support for this approach from Green Party spokespersons, and it is all too easy to see the notion growing legs.

Disposal of assets at less than best commercial value is a direct cost to the Exchequer, € for € as costly as excess payment for those assets on acquisition. There may well be a case for improved provision of schools, sports facilities, health centres, and indeed lots of other things, but it is an illusion to pretend that the State’s imminent acquisition of an enormous property portfolio at enormous cost somehow relaxes the overall Exchequer constraint.

NAMA will of course need to avoid over-payment. It will also need to avoid becoming an adjunct to the National Lottery Fund, dispensing property assets to worthy causes.

NAMA Pricing: Let’s Focus on the Real Issue

Two days into the public debate about the implications of the proposed NAMA legislation, I have been extremely disappointed at the approach taken by the government to debating the key questions raised by this policy.

Continue reading “NAMA Pricing: Let’s Focus on the Real Issue”

Lucey on NAMA Legislation

Today’s Irish Times features a very clear and well-argued op-ed by Brian Lucey on the NAMA legislation. Link here.