On today’s RTE radio News at One, Sean Whelan reported that Irish banks have exposure of about €7 billion to Greek debt, that restructuring of Greek sovereign debt could lead to a fifty percent write-down of Greek debt and that because the Irish government are supporting the banks, the contribution of €450 million by the Irish government to the Greek bailout needed to be placed against the possibility of a potential loss of €3.5 billion for the banks.
Much of this is correct but it is perhaps worth clarifying what we know about Irish bank holdings of Greek debt. First, I’m guessing that Sean Whelan is quoting from figures released from the BIS which show that Irish banks hold $8.6 billion in Greek debt. At an exchange rate of €1 = $1.31, this translates into €6.6 billion, so Sean Whelan’s figure is about right.
However, a few caveats about this are required. First, it appears that these figures relate to all Greek debt not just government debt.
Second, I believe the definition of Irish banks here include Irish outlets of non-Irish banks (such as various IFSC institutions) which are not receiving assistance from the Irish government.
Third, the figures available for the major Irish bank holdings of government bonds show that it is essentially impossible that these banks are holding such large quantities of Greek government debt. Greece’s rating was downgraded to BBB+ on December 16, this rules out AIB holding much Greek debt. The banks report their holdings of government bonds by ratings and they hold almost no government bonds with low rating (e.g. AIB only €109 million of these holdings were below A rating, Anglo have only €132 million).
So, to conclude, financial institutions in Ireland hold about €7 billion in Greek debt but we don’t know how much of this is Greek sovereign debt. We do know that the banks that are receiving assistance from the Irish government do not hold much Greek sovereign debt. For these reasons, the direct cost to the banks receiving assistance of a Greek restructuring would be a lot less than the €450 million figure cited for our direct contribution.
Keeping in mind that the caveats above are not accounted for, this post from the Peterson Institute is still worth reading.
Update: The Minister for Finance has now confirmed that Irish bank exposure to Greek sovereign debt is negligible relative to the size of their balance sheets–less than €40 million apparently.