As stories about a Greek sovereign debt restructuring gather pace, expect to read lots more stories like this one in which some guy claims that a Greek restructuring would “severely damage the banking systems of Ireland and Portugal.”
Let’s be clear. It won’t. We’ve been here before with people quoting figures from the BIS on Irish exposure to Greek debt that stemmed from holdings of foreign-owned banks in the IFSC. However, even the BIS figures now show “Irish” bank exposure to Greek debt has collapsed to below $1 billion (you can find a time series in here if you look hard enough.) God knows there’s enough to worry about in relation to the Irish economy and its banks, so let’s at least try to put this one to rest.
9 replies on “Greece Not a Threat to Irish Banks”
@KW
Reuters piece is a bit of a ‘riot’ – thought these guys had a reputation! (might drop Rioters from me metaphorical tool-box). From Day-1 I supported EU support for Greece in spirit of EU solidarity. At this stage I go with the sane Germans who see Greek default as only sane route for Greeks – they could also badly do with a reasonably efficient Revenue as a good few billions in Switzerland! However, our better_overlords stay with the dominant narrative ….. at times even out lorenzo_ing lorenzo which takes some doing ….. Der Spiegel today …. for a pair we know very well …
…’Ollie Rehn plays the Lehman card, and Klaus Regling … er .. claims that banks want to make money out of Greek restructuring/default!!!!
‘[Greek Finance Minister’s] comments echoed those of European Monetary and Economic Affairs Commissioner Olli Rehn on Monday. Rehn said that debt restructuring “is not part of our strategy and will not be.” He said that such a move would be a big risk to European financial stability — alluding to warnings from other EU officials that a Greek bankruptcy could trigger the kind of turbulence set off by the Lehman Brothers bankruptcy in 2008.
Klaus Regling, head of the European Financial Stability Facility (EFSF), the temporary, €750-billion euro-zone backstop, went even further on Monday, accusing those predicting a debt restructuring of greed. “In the 1980s and 90s, banks received very high fees for the restructuring of sovereign debt in Latin America and Asia,” Regling told the financial daily Handelsblatt. “They would love to do it again in Europe.”
http://www.spiegel.de/international/europe/0,1518,760383,00.html#ref=nlint
@ all
Would the possible domino effect from Greece not more likely be political than Economic?
Would Ireland and Portugal not come under pressure from within their own countries to try and restructure as much as possible if Greece did it?
well the super smart ecb european bank stress tests from last year shows the euro banks could survive such bn event. Then again, that might have something to do with ‘hold to maturity’ 😀
@ Ahura
Actually, the super smart stress tests ruled out that such a possibility could ever occur. Sovereign bonds held in the trading book could fall in value for some mysterious reason but there would never be a default.
I suppose the mysterious reason could have been inflation expectations.
Once the principle of a sovereign default in the EZ is established it might have implications for the standard tactic of obtaining through influence, a political commitment – say like pensions for Teashops – getting it passed by the executive and effectively obtaining a sovereign obligation.
The “networks of contracts” then has to be sustained so hey presto, you have literally made money for yourself and your allies.
Clearly default is not an option so.
Let’s be clear, It will! First of all we were told Greece might need a bailout but not Ireland. Now, I am told if Greece default, it will not have an impact on Irish banks. Irish banks are now the state bar a few measly shares in BoI, a Greek default will put Ireland smack in the middle of the cross hairs of the telescopic sights of those who are intent on getting even richer by loading up on Irish CDS’s. For anyone that wants to get rich out of all way to go.
“rich out of all this way to go”.
Actually Robert the cds market is not panning out as its proponents would have you believe – see the farce over Irish bank bond cds contracts.
@ Karl.
You’re right. I don’t have proper internet access at present (holidays yippee). Was it any notes described as hold to maturity were not discounted? There was definitely something that made me think wtf.