New IMF Statements on Ireland

Press release is here.

Review is here.

50 replies on “New IMF Statements on Ireland”

Overall this is an upbeat review especially on the fiscal side. Some of the work is shoddy though – the property prices on page 5 are wrong for commercial. Jones Lang LaSalle (not Desalle as stated in the report) show a 10%+ fall in capital values in 2010 whereas the IMF show flat prices.

On the banking side, as far as I know the target loan:deposit ratio has still not been decided. That was a task with a completion deadline of Q4, 2010.

Also the report says in relation to deposits “Pressure from corporate deposit outflows have moderated, however, and retail deposits continue to be relatively stable”This is at odds with the December 2010 data. We’ll get an idea this Friday of the Jan 2011 position.

Somehow I don’t think the IMF are giving us their A-Team.

@The IMF

‘… a lingering domestic perception of inequitable burden sharing persists …’
Minor point: Might I remind the diplomats in the IMF that, in this particular case, ‘PERCEPTION’ is, in reality, a FACT.

Constraints due to European level power dynamics somewhat understood in your case; that said, the December ‘agreement’ (sic) will take its place in the annals of the IMF as not only lacking any semblance of Justice, but as one of the most technically and economically flawed in your history – and personally, I believe you already know this FACT.

Similar to the blatantly unjust conflation of private banking system debt with Irish sovereign debt – this ‘forced agreement’ conflates the reputation of the IMF with the procrastinating, unjust, and deeply flawed European policy of the moment which place health of ‘dodgy’ financials ahead of its citizens. Both IMF and Irish lose in this case; perhaps it is time to cut loose?

Kantian, Irish and American pragmatists believe so.


Given the property bust has a central role in the IMF’s involvement, I find it bizarre that they sent staff members over who are apparently so unfamiliar with Irish economics that they would not query the idea that commercial property values did not fall during 2010.

Perhaps it demonstrates that Ireland should recognise that it has local knowledge and should take the lead a bit more. It is a bit like all the concentration on that a few guys from Merrill Lynch thought rather than what locals knew.


This is from that Vanity Fair article

The new financial regulator, an Englishman, came from
Bermuda. The Irish government and Irish banks are crawling with American investment bankers and Australian management
consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at
night and, through restaurant windows, you
see important-looking men in suits, dining
alone, studying important-looking papers.
In some new and strange way Dublin is now
an occupied city: Hanoi, circa 1950. “The
problem with Ireland is that you’re not allowed
to work with Irish people anymore,” I
was told by an Irish property developer, who
was finding it difficult to escape the hundreds
of millions of euros in debt he owed.


The ‘local’ upper-echelons who remain in positions of ‘power and influence’ are the real impediment to progress. There is an urgent need to Default on them as well … this local network of incompetence, racketeering, corruption, self-serving in-bred nepotism, and crony governance within mainstream political system is well past its sell-by date in a progressive 21st century Ireland – off with their heads I say, in parallel with all remaining bank/ponzi-developer/bond holders – TIME TO GET REAL as they are leading us into oblivion.

Methinks the IMF agree – albeit too ‘political’ to say so. And we contribute to progress within the European project by doing so.

“The ‘local’ upper-echelons who remain in positions of ‘power and influence’ are the real impediment to progress.”

Absolutely, but what you have to understand is that the IMF cannot touch them – neither can any foreign power. Regime change can only happen from within the country.

Look at the prospective gov or the transparent opposition politics of SF and you are hard pressed to imagine anything but more of the same.


the only way to get from 200 to say 100 in the circumstances you describe is to sell off bits of the bank’s loan books at fire sale prices. But since, everybody on the liability side must be made good, the taxpayer is on the hook for maybe 30billion on top of whatever the bill currently stands at.

But then, I knew you know that.

Slightly off-topic, but someone at BarCap is speculating that the CBI has been applying 30 – 40% haircuts to ELA. Given that this is c. 50bn it is not trivial as this is additional government debt to whatever extent the haircutting is too small.

Given that this is Ireland, I have been entertaining the possibility the haircuts might have been nominal.

Does anyone know anything?

The public response to the program has remained favorable, but a lingering domestic perception of inequitable burden sharing persists.

Perception equals reality. 100% in this case.

From the report.
Domestic demand
2008 -5.4%
2009 -13.9%
2010 -4.4%
2011 No forecast-How convenient
Fixed Investment
2008 -14.3%
2009 -31.0%
2010 -26.0%
2011 No forecast-How convenient.

A significant part of the above to pay back bank bondholders.

Ireland would be far better off telling these boys to leave and keep their money.
The only agenda being served here is the impoverishment and destruction of a country.

@ Grumpy

my own, informal and anecdotal understanding (and thats all it is, nothing official or definite) was that the collateral now in the ELA had previously (until end 2010) been eligible for the ECB repo, and had been suffering 40%+ haircuts there, due to a lot of it being non-Euro, self-held issuance. I was under the impression that the ELA was actually using less onerous collateral discounting than the ECB, albeit still chunky enough, ie not ‘nominal’.


ECB max haircut should be 46%. for longer maturity lower liquidity bbb-.

The non-eligible stuff at the Irish banks would, by dirty extrapolation, be 55% +.

The question is, what, if any haircuts is the CBI applying? There must be a reason why there is no guidance at all.

Hands up if you are not curious, or are we all wearing the green jersey by not asking?

“The only way to get from 200 to say 100 in the circumstances you describe is to sell off bits of the bank’s loan books at fire sale prices. But since, everybody on the liability side must be made good, the taxpayer is on the hook for maybe 30billion on top of whatever the bill currently stands at.”

It is all building up into a mighty crescendo with all the numbers headed in the wrong direction

Growth can only happen with the banks functioning normally
With the 10 year yield just below 9% the banks can’t get any funding other than from the ECB.
The banks can only leak so many more billions in deposits before the ECB hits its its own limit of acceptable exposure to them
The Government only has 85bn to pay for groceries and can’t put much more in terms of bank losses on the VISA card
The sovereign debt can only go so high as a percentage of GDP

@ Grumpy

promissory notes were/are being haircut by 7.5%, and previous non-eligible Anglo collateral (customer loans) were being haircut by 33% (per Anglo accounts in 2009). Not sure what the newer AIB/BOI/PTSB stuff is being haircut to the tune of, but given that the Anglo stuff was given a not insignificant haircut, it makes sense to assume some sort of decent haircutting is occuring with the newer stuff.


It would appear that CBI having an additional 49bn as “other assets” should not mean they have “printed” 49bn. The reality will reflect the haircuts presumably and deposit replacement ill be similarly lower.

If the CBI has been prudently haircutting everything it is a Really Bad Idea for them to fail to make this clear.

The elites and upper echelons of the Irish social and poltical construct reley totally on a outside revenue stream , there is little or no internal revenue which you can strip out to satisfy a comfortable urban ideal.
If they want to keep their lifestyle they need to keep to the script – Ireland is a empty bog to them.
The European and American tectonic plates meet here and those in the know get the scraps and if they can’t get the scraps they revert to their tradional old knowledge of cannibalism.
They should get a group of social anthropologists into the Pale to try to figure this strange group of mongrels out – I am sure many of them are baffled with the possible exception of a few Norman lads.

Maybe Gillian Tett can use her expertise in this area for some entertaining but salutary tales of cannibalism in the New / old Ireland

Isn’t the value of the asset from the CBI’s point of view the value of the
loan to the bank, not the value of the collateral. I would expect these loans to be valued at par. Apologies if I am misinterpreting what you are saying.


Is it explicitly written into the EU/IMF agreement that the Irish banks cannot negotiate or impose ‘haircuts’ on any bondholders?
What is the exact position and wording of the agreement on this?

@ John Mc/Grumpy

the ELA figures are the amount of liquidity, not the par value of the assets being used as collateral. They are also not the current value of the underlying loans – haircuts are taken from the current value, not the par value.

ie BoI loan of par 100mn may be valued at 80mn right now. CBI may insist on additional 20% haircut, meaning liquidity provided against pledged collateral is only 64mn. This appears as ‘other asset’ of 64mn, as that is all that is owed to the CBI.

@ Joseph

no, not written explicitly into the IMF agreement. It is alleged to have been included in some sort of “side letter” agreed between the IMF and EU that this would be the general understanding between these parties.

Thanks Eoin. Actually, when I wrote “value of loan to the bank” I was referring to the value of the ECB’s loan to the bank — ie the ELA — so I think we are in agreement.

@Eoin, JohnMcH

Was just about to say, yes that makes sense, when stumbled across this – see last comment from Alea:

Accounting for a repurchase agreement would appear to be a trifle opaque.

Might I respectfully suggest that this subject could do with a thread? If there is uncertainty on in these fora, the politicians and the punters have no chance.

Echoing grumpy, I don’t think it is clearcut that market values are used. I’ve seen that the CB has to revalue commercial loans taken as collateral on an annual basis, but nowhere have I seen that residential loans have to be revalued. Maybe this is terminology I’m falling over in that a bundle of mortgages is considered a commercial loan.

It is also not clear that any ELA haircut would be applied to sovereign, semi-sovereign (e.g. NAMA, HFA bonds), corporate bonds, self-issued bank bonds, ELG debt, or promissory notes.

My understanding also of the ECB haircuts are that they are on par value not market value.

While the ECB is clear in its collateral haircuts, the ELA haircuts are far less well defined and seem to me to be a case of “how much do you need it to be worth”.

@ Hogan

“It is also not clear that any ELA haircut would be applied to sovereign, semi-sovereign (e.g. NAMA, HFA bonds), corporate bonds, self-issued bank bonds, ELG debt, or promissory notes.

My understanding also of the ECB haircuts are that they are on par value not market value.”

Anglo announced in their results last year that promissory notes were taking a 7.5% haircut.

ECB haircuts are on the market value, not the par value, though the haircuts can becoming very severe where it is difficult to get a market value.

You clearly have not been uptodate on Philip’s required reading list – from “The Implementation of Monetary Policy in the euro Area: February 2011”

“The Eurosystem applies the following risk control measures:

• Valuation haircuts

The Eurosystem applies ‘valuation haircuts’ in the valuation of underlying assets. This implies that the value of the underlying asset is calculated as the market value of the asset less a certain percentage (haircut).

• Variation margins (marking to market)

The Eurosystem requires the haircut-adjusted market value of the underlying assets used in its liquidityproviding reverse transactions to be maintained over time. This implies that if the value, measured on a regular basis, of the underlying assets falls below a certain level, the NCB will require the counterparty to supply additional assets or cash (i.e. it will make a margin call). Similarly, if the value of the underlying assets, following their revaluation, exceeds a certain level, the counterparty may retrieve the excess assets or cash. (The calculations relevant for the execution of margin calls are presented in Box 8.)”

Surely people here are not suggesting that the ICB has taken over bank liquidity support duty from the ECB using collateral that the ECB couldn’t touch – or are legally prevented from touching (or have more than enough already) – and not applying haircuts to reflect its ‘marked-to-market’ness 🙂


Inquiring minds want to know!

We do know the non-Nama’d stuff contains some real dross.

Without information, we have to assume.
What do markets hate?
Answer: Begins with a “U”

I got a 404 when I tried to get it… I’ve since found it.

It is not the haircuts I am arguing with, it is the marketable value. As I say, sovereign debt (in all its guaranteed forms) comes under:
“Guarantees: In the absence of an (acceptable) ECAI credit assessment of the issuer, high credit standards can be established on the basis of guarantees provided by financially sound guarantors.”

Now, I doubt for a moment that either of us would consider the Irish state a financially sound guarantor, but the fiction is being maintained that we (and others) are. So our sovereign debt is accepted at a market value of par and, I believe, all other debt that we have guaranteed is treated the same.

Otherwise I don’t see how a junk sovereign with junk banks can get any money at all, never mind 140 bn in repo and ELA.

@ Grumpy

again anecdotally, but i believe the ELA usage by the banks recently has used a lot of their GBP mortgage books, which became inelligible for ECB repo at 31/12/10 on the basis of it being non-EUR. It actually maybe semi-decent quality as such.

Just read this comment by paul quigley, on the previous thread:

“One of the functions of professional techinque is to preserve the necessary level of complexity, obscurity and vagueness in which potentially embarrassing conflicts of interest can be concealed or fudged. ”

Seems like quite a vesatile combination of words.

@Paul Hunt.

I think people are suggesting this. To me it seems that the ECB welched on liquidity support and the ICB started to issue money. Presumably they need some collateral. Or maybe they don’t. Maybe they are printing money but I doubt that?

What is more interesting is why the ICB did not say flatly to the ECB -YOU are the lender of last resort, it is your responsibility to provide liquidity support. If the ECB refused the banks should have been put into receivership.

@ Hogan

“So our sovereign debt is accepted at a market value of par”

I dont see where you get that. The sovereign nature of the guarantor should only affect the haircut category, or its eligibility based on other criteria such as issuer type, maturity etc, not the market value. If nothing else, a lot of outstanding sovereign debt trades well above par due to interest rates having collapsed in recent years (eg 2027 Bunds trade at 133 cents). Per your belief, you would be getting far less than market value for those particular issues as they would be valued at 100 in the ECB’s eyes.

Eoin, I saw a figure somewhere of about 16bn for the CBI taking over repoing non Euro stuff that the ECB stopped accepting. That would not be the main interest here. It is a question of haircuts for the “assets” that the ECB would not go near to begin with, plus any additional stuff except the 16bn.

It boils down to a question of whether the market needs to factor in the possibility that in respect of some ELA, the CBI might have held its nose and looked the other way – and if so, for what amount.

Recent history suggests it would not exactly be out of the question, needs must and all that.

@ Grumpy

ELA is 49bn. Of this we can be fairly sure that 31bn is promissory notes. That only leaves 18bn, which is thought to be predominantly the GBP stuff (ie the 16bn).

Op-ed in today’s Irish Times …

“Leaving aside the issue of bank debt and the matter of the postponed recapitalisation, none of the Opposition parties has raised major issues with respect to the banking restructuring proposals outlined in the MoU.”

[Donal Donovan was a staff member of the IMF during 1977-2005 before retiring as a deputy director. He is currently adjunct professor at the University of Limerick and a visiting lecturer at Trinity College Dublin]

Is this guy for Real? “ Leaving aside the issue of bank debt ….” JHC …. Look at The ELEPHANT!!!!
“… none of the opposition parties …” NONE. NONE!!!!

Blind Biddy wants to know why UL and TCD need adjunct professors of ‘spinning fudge’? So do I! Might I suggest that Ghensis Constantin G. Khan and Professor Lucey and any past or present president of UL seek him out as a gentle refresher course appears to be in order ……….


The 31bn is promissory notes?

I was far from sure of that……could be though. Any refs for that?

You cannot logically claim that sovereigns are not being taken at par and then claim that of 49 bn in ELA 31 bn is promissory notes (i.e. face value).

You also cannot credibly claim that a promissory note given to a bank is senior to a sovereign bond (so has a higher market value).

Either they are being taken at face value for market valuation purposes or they are not. Or perhaps only sometimes…

Don’t forget the IMF reputedly favours burden sharing on the banks. It wants to get its cash back from the sovereign…

@ Grumpy

From Anglo’s 2010 accounts, note 24:

“Total borrowings from central banks was €26.3bn at 30 June 2010. Included within this was €11.6bn (31 December 2009: €11.5bn) borrowed under a Special Master Repurchase Agreement (‘SMRA’) and a Master Loan Repurchase Agreement (‘MLRA’) from the Central Bank and Financial Services Authority of Ireland. The majority of the funds were advanced under the SMRA, involving the sale and repurchase of the promissory note.”

So that provides the basic understanding and concept backing it up. I have been told in recent months, on the record, and in a semi-public setting, by government officials that the entire 31bn is now promissory-note-backed.

@ Hogan

your original suggestion was that ECB collateral rules take sovereign bonds at par. This is incorrect. Now you’re saying its the ELA you’re referring to. Which one do you want to discuss?

ECB rules are set in stone regardless of sovereign vs corporate (market value), but while ELA rules are no doubt flexible around haircuts, there is no reason to suggest that they are ignoring market valuations. Haircuts are only designed to take account of the fact that there could be wide spreads and a lack of liquidity, or the fact that there could be market volatility which could see the price drop by a large amount in a short space of time. They are not related to market values, which are treated seperately. A haircut of 20% is pointless if the MV is off by 30%.

Re the promissory note being senior to a sovereign – i didn’t say that. Where the fudge will obviously come in will be because the promissory note does not have a market value, and so MUST be valued at par, and then a haircut is taken. I will agree 100% that that is where some additional liquidity is being provided, but for anything with a market value (ie any tradeable sovereign bond) the market value is used.

So re the 31bn of 49bn – fine, adjust down by the 7.5% haircut Anglo has apparently been taking on them. 28.7bn of the 49bn is promissory note related….

Thanks Eoin.

I suppose a promissory note effectively amounts to the same thing as a claim on the Irish state – which is what simple printing would be. So in a sense we seem to have about 30bn of printing, but not necessarily additional government debt.

Would you say that is about right?

I don’t accept that in either case. No, I don’t accept that 😀

I just don’t see how banks, not just in Ireland, would not be bust if market values were taken. Oh…

It is also peculiar that a promissory note, that you would accept is junior to a sovereign bond, right?, has a higher value than a sovereign bond. Or the debt that the banks issued to themselves has a higher value than previous debt they sold…

And other humpty-dumptys…


I fully recognize, and have posted earlier on same, that there are pragmatists within the IMF who recognize the absolute necessity of burden-sharing – but due to EU power dynamics – cannot publicly say so ….

… hence my dismay at the ‘spin’ from ex-imf_er O’Donovan – who is blatantly fudging the facts ….. and who does not now represent IMF …. but has the veneer of respectability of two of Ireland’s universities – and is bringing both into disrepute by so spinning ….

@ Grumpy

yes, there needs to be a distinction between the two types of ELA – the rather circular case of a state guarantee backing a loan made by one state entity to another state entity, which as you said smells like QE by another name, and any ELA which is made to a non-nationalised bank and backed by actual ‘real’ assets. I’d potentially include the latter in national debt discussions, but not the former.

@ Hogan

while the market value of ELG or promissory notes may be difficult to find, and therefore it reverts to par, the haircuts for ‘non marketable’ securities are usually much bigger as well, so the effective differences between the two might be very small. For instance, an outright sovereign bond only takes a tiny haircut (1-2% i think), while a non-marketable security could be subject to 20%+ haircuts, and 45%+ in the case of non-Euro self-held stuff, which is actually what i think was happening with the GBP-denominated securities being used by the Irish banks with the ECB. Market value may have in theory been 100, but liquidity given against it might have been close to half that.

I thought you said the non-marketable promissory note would take a 7.5% haircut? Now we’re up to 20+%? From the ECB collateral table, a non-marketable with a 1 year duration would be 7.5%; the promissories are ten year notes, no? (At least in part). That’d push them up to the 45+% region…

Most interesting, helpful and enlightening detail. Reminds me somehow of ‘the elements of handicapping’, as set out by Victor Niederhoffer in the The Education of a Speculator. John Wiley 1997.

‘The chief reason speculators should go to the track is that the central dynamic that keeps the wheels of commerce turning is more clearly visible at the races than everywhere else’
..a horse can’t tell you it doesn’t feel like racing today…but it can indicate its disinteresteness in the race at hand…

..every good player practices a little honest larceny; otherwise they could never win a game…

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