Mody on Institutional Change

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Writing in today’s Irish Times, Ashoka Mody argues for the need to introduce a special resolution regime for banks as well as “fiscal benchmarks and supporting rules, along with a technical voice in the form of “fiscal councils” to evaluate budgetary risks.”

Mr. Mody is assistant director in the European department of the International Monetary Fund and has lead the IMF’s article for team that has visited Ireland in recent years. While Mody’s senior IMF status makes him worth listening to, it’s also worth noting that he has a considerable research record as an economist including this interesting work on the effects of budgetary institutions.

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3 Responses to “Mody on Institutional Change”

  1. Brian O' Hanlon Says:

    @ Karl Whelan,

    Lets take a hypothetical position and assume that our troubled asset management solution has worked beautifully, and is performing miracles in terms of stabilisation of the property market. As far fetched as that all sounds, lets assume that constant in the equation for a second. What other variables in the equation necessitate attention, and can enable us to target efforts to re-build our financial system? This resolution regime does appear to be a very significant variable in the larger equation, and unfortunately, it seems to be one that is lagging behind in it’s progress. Many other contributors here to the Irish Economy blog site, and commentators elsewhere, have suggested a process – whereby the Irish lending institutions should support entreprise in the real economy – and that in turn, is the only way that Irish lenders are going to improve the general health of their balance sheets. Maybe those same lenders have been so badly bitten by the property collapse, they are still paralyzed and cannot move on that front. Perhaps, that is another aspect which reinforces Michael Noonan’s recent suggestion, that many more of the senior management in our lending institutions should move on.

    Standing back from all of the above for a moment, (bearing in mind, there are additional components of the equation, such as competitiveness etc, I have not even highlighted), of the three major variables above, which two are lagging behind, and which one has advanced significantly (albeit at a slower pace than one would wish). The answer of course is that the government, for its own part, has progressed the asset management program a good deal. But the other two parts I mention, the lending to the real economy and the resolution regime legislation, has yet to even begin. From a program management point of view, I can detect a severe imbalance in that current state of affairs. Ironically, it appears the variable which most relied upon government’s involvement, is the part which seems to have progressed the most. BOH.

  2. Paul Says:

    The IMF is clear – they think the banks are insolvent and so need a resolution regime in order to make creditors take haircuts. The government does not want to do that so is delaying as long as they can. Meanwhile, the government runs enormous budget deficits, and issues bonds to banks to cover their defiicits too, so we lose and lose again. The final story of all this is clear: either the banks default, or the nation defaults with the banks. If we do it early the banks can default alone – we can finance the budget from the IMF. If we do it late, then we will have so much debt that the Irish sovereign will default too. Not fun choices but, since none of us seem able to change the situation, we are likely to just wait, pretending it is all ok, until it all falls apart…

  3. Dreaded_Estate Says:

    Even at this stage a banking resolution regime could save the state several billion. Yet we don’t seem to have started the process of enacting one.

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