31 replies on “The Danish experience with burning bondholders”
A very useful article.
If…if…the commisars of the EBA and ECB were posessed of the least intellectual curiosity, tthey would send a technical team to Denmark, with plenty of funding to observe this natural experiment:
1) Collect extra information and data
2) Analyze same
But the ECB and EBA are ‘don’t rock the boat’ institutions – staffed by intensely legal minded civil servants
While the Irish civil service continue with their peasant attitude to money forgetting that trade is the thing. It will matter not one iota how many banks are allowed to hit the wall elsewhere.
Ireland doesn’t have 120 small banks.
What a terribly researched article, or at the very least he’s completely omitted the most relevant facts – Denmark didn’t “hone” their policy further, they more or less reversed it! This was because of the adverse reaction its banking system suffered as a result of the initial policy which saw the ‘bail in’ of depositors and senior debt.
The original policy under Banking Package III saw senior debt and depositors liable for losses, a feature which was used twice. This is no longer the case, or will not be the case in 99% of situations (in theory its possible, but in practice it seems highly highly unlikely). Under Banking Package IV, any failed bank will be seperated into a ‘Good’ and a ‘Bad’ bank. The Good Bank will be sold to a new investor, on pretty attractive terms, alongside the deposits and senior debts (because of change of ownership clauses most senior debt will be repaid straight away), and the Bad Bank will be given to the government bank rescue vehicle, with equity and subdebt most likely wiped out (assuming losses are big enough). Senior debt and depositors are now extremely unlikely to suffer a loss in the event of a banking collapse, though most of the losses of the Bad Bank will end up being bourne by the wider banking system, with the state only taking on some of the losses.
Ireland has a lot more than 120 ‘small banks’. Thet are called credit unions, and are about to make their own solid contribution to the national debt.
@Bond. Eoin Bond
Previously you claimed the Danish policy was ‘cancelled’, and now you say it is ‘reversed’. However this is not really the case from what matters to taxpayers – the amount of public money to be spent bailing out failed banks. The taxpayer will be no worse off under Bank Package IV models than Bank Package III, which remains there as a baseline should the banking industry fail to implement Bank Package IV models. From a Danske Bank report:
Two models are introduced. In both cases the costs for the government (through the wind-up Financial Stability Company) must not exceed the expected loss according to bank package III.
The losses will be spread across the industry as whole, rather than imposed solely on a failed bank’s creditors, but the intent is that there will be no additional taxpayer costs. While ‘honed’ may understate the change, ‘reversed’ overstates it.
@ Bryan G
the article by Beesley is about “burning bondholders” (its the central phrase of the title of both this thread and the article). The Danish government has reversed, or perhaps even cancelled, that policy. I made note of the costs being bourne by the industry in my comment above.
@ Bryan G
…finished too early there: because we own almost all of our banking sector, it would be pointless to attempt something similar here.
Ireland doesn’t have 120 small banks.
Ireland doesn’t have its own currency.
@Bond. Eoin Bond
I think the real relevance of the Danish experience is not to Ireland, but to the EU/EZ as a whole. Denmark is an existence-proof that setting up new rules that include an end to (or at least a huge reduction in) taxpayer bailouts of banks does not cause the sky to fall down or the ATMs to stop working. The obvious question is why is there not an equivalent effort at EU/EZ level to remove the implicit taxpayer subsidies granted to the banking industry. Rather than decoupling the banks from the sovereigns, as the IMF propose, they are being even more tightly interwoven (e.g. the indirect support of sovereign bonds via the 3yr ECB loans to private banks). Many countries have changed the rules to a greater or lesser degree (e.g. Dodd-Frank & Volker in the USA; Vickers in the UK; Danish experience etc.) but there appears to be nothing but obfuscation, silence and delays on this front in the EZ.
What a poor article. No wonder our journalists are often referred to as stenographers.
Surely a journalist would have researched better the effect of the Denmark experience. Has it raised funding costs, as is oftentimes claimed. Has it affected credit and deposits, and by extension has the Danish economy suffered. Did senior bondholders lose only 15%. What is meant by a “dowry” to attract healthy banks to take over ailing banks. Surely the EU doesn’t allow such intervention to be anti-competitive.
You wouldn’t know from the article whether or not the Danes made the right decision, or have the basic facts to form a view one way or the other. But if it was the right decision for Denmark which has seen property drop by 20pc, what does that mean for us where our property has dropped 50-70 pc.
What a poor article. No wonder our journalists are often referred to as stenographers.
Surely a journalist would have researched better the effect of the Denmark experience. Has it raised funding costs, as is oftentimes claimed. Has it affected credit and deposits, and by extension has the Danish economy suffered. Did senior bondholders lose only 15%. What is meant by a “dowry” to attract healthy banks to take over ailing banks. Surely the EU doesn’t allow such intervention to be anti-competitive.
You wouldn’t know from the article whether or not the Danes made the right decision, or have the basic facts to form a view one way or the other. But if it was the right decision for Denmark which has seen property drop by 20pc, what does that mean for us where our property has dropped 50-70 pc.
@Colm McCarthy (your 10:29pm post above)
That sounds ominous. I was wondering when the boil was going to be lanced.
Do you think whatever happens in the credit union sector this year will result in mergers/consolidation or government ownership and is it likely that people who hold savings with them lose any money? I would be interested in your view of how that’s all going to pan out.
@ PR
“is it likely that people who hold savings with them lose any money?”
Ah here now, bit of cop on pls, there’s enough silly chatter out there without adding to it. Credit unions are covered by the government guarantee on deposits, the same as the banks, no limit to this amount per person. I think Colm is referring to the €1bn that will be required to recapitalise some of the struggling CU institutions.
PR, Eoin Bond:
Sorry for being cryptic: €1 bill for credit unions is serious money – can you imagine the fuss if the credit union disaster, or the Quinn Insurance debacle to be paid for with a levy on one and all, had not enjoyed the smokescreen provided by Anglo, AIB etc?
Poor Italian auction fyi. They had rallied in massively over the last week (3yr yield 125bps lower pre-auction compared to Monday afternoon), so possibly a bit too far too fast.
What we are dealing here with is a comparison between competent, agile, creative and smart responses to the banking crisis and our own disastrous record of bleak sheep incompetence.
Not only Denmark, but also Spain have adopted this bad bad/good bank, amalgamation, based on the separation principle of minimising state liability in found solutions, not exaggerating them. Iceland outside the EMU is also a guide to good practice with its determination to force a fair deal with senior bondholders.
Here we swallow every bit of rubbish forced down our throats by the Troika or ECB. So much so, that the people largely responsible for the mess we are in, gombeens, lecture us on the danger of avoiding contagion. We swallowed that rubbish and took our 6% punishment with open arms. Of course, we didn’t save the EMU, or avoid contagion for it, but we imported more of it!
The ‘contagion’ card was our ace of spades. Threatened contagion would have the Ollie Rehn’s eating from our hands; instead, we used it against ourselves!!!
I quote from the article:
“In addition, the separation of Danish banks from euro zone lenders means contagion risk is reduced. This is important, as the ECB fears any senior bond losses in Ireland would puncture confidence in the entire stock of weakened bank debt in the euro zone.”
There is a deep management crisis at the top of the Irish decision tree, the Cardiff’s, MDonagh’s, Honahan’s plus NTMA and Department for Finance have followed disastrous policies of blind incompetence that have turned the country into a financial titanic.
The destruction wrought by the banking sector is second only to the NTMA in this regard.
“The delegation of banking system functions to the NTMA was revoked with effect from August 2011 and the NTMA banking team has been seconded to the Department of Finance. I am pleased that the staff recruited by the NTMA
form the cornerstone of the new Banking Unit in the Department and that their valuable commercial
and specialist skills continue to be utilised by the State. ”
“Through initiatives like burden sharing with the
junior bondholders and the sourcing of private capital for Bank of Ireland, the net amount of this
capital provided by the State is now expected to be around €16.5 billion.”
“Investors we have met are mostly of the view that Ireland is the best positioned of the eurozone periphery
countries to deal successfully with the crisis as it has a more flexible open economy and is recognising and taking action to deal with its problems on the basis of the measures set out in the
IMF/EU/ECB (the troika) programme. ”
“The Banking Unit has engaged with the banks to drive an agenda of burden sharing with
subordinated bondholders. Since 2009 burden sharing measures have delivered €15 billion which
would otherwise have had to be provided by the taxpayer. This includes €5.2 billion in burden
sharing since 31 March 2011 following the Central Bank’s PCAR/PLAR review. ”
“Some analysts had speculated that the Popular Party government of Mariano Rajoy, prime minister, would set up a large, state-funded “bad bank” like NAMA to absorb the non-performing assets of lenders hit by the collapse of the housing bubble and the subsequent European economic crisis.
However, strong Spanish banks opposed the “bad bank” idea, arguing they could handle their own problems and that weaker lenders should if necessary be absorbed by their rivals.”
We need to get out of the EMU asap. Any truth to the rumour up to 30,000 jobs in the financial services sector in Ireland will go over the coming year? I thought I was hearing things when I heard Richard Bruton saying the financial services sector would be future source of jobs for Ireland’s economy!
What we are dealing here with is a comparison between competent, agile, creative and smart responses to the banking crisis and our own disastrous record of bleak sheep incompetence.
Not only Denmark, but also Spain have adopted this bad bad/good bank, amalgamation, based on the separation principle of minimising state liability in found solutions, not exaggerating them. Iceland outside the EMU is also a guide to good practice with its determination to force a fair deal with senior bondholders.
Here we swallow every bit of rubbish forced down our throats by the Troika or ECB. So much so, that the people largely responsible for the mess we are in, gombeens, lecture us on the danger of avoiding contagion. We swallowed that rubbish and took our 6% punishment with open arms. Of course, we didn’t save the EMU, or avoid contagion for it, but we imported more of it!
The ‘contagion’ card was our ace of spades. Threatened contagion would have the Ollie Rehn’s eating from our hands; instead, we used it against ourselves!!!
I quote from the article:
“In addition, the separation of Danish banks from euro zone lenders means contagion risk is reduced. This is important, as the ECB fears any senior bond losses in Ireland would puncture confidence in the entire stock of weakened bank debt in the euro zone.”
There is a deep management crisis at the top of the Irish decision tree, the Cardiff’s, MDonagh’s, Honahan’s plus NTMA and Department for Finance have followed disastrous policies of blind incompetence that have turned the country into a financial titanic.
The destruction wrought by the banking sector is second only to the NTMA in this regard.
“The delegation of banking system functions to the NTMA was revoked with effect from August 2011 and the NTMA banking team has been seconded to the Department of Finance. I am pleased that the staff recruited by the NTMA form the cornerstone of the new Banking Unit in the Department and that their valuable commercial and specialist skills continue to be utilised by the State. ”
“Through initiatives like burden sharing with the junior bondholders and the sourcing of private capital for Bank of Ireland, the net amount of this capital provided by the State is now expected to be around €16.5 billion.”
“Investors we have met are mostly of the view that Ireland is the best positioned of the eurozone periphery countries to deal successfully with the crisis as it has a more flexible open economy and is recognising and taking action to deal with its problems on the basis of the measures set out in the IMF/EU/ECB (the troika) programme. ”
“The Banking Unit has engaged with the banks to drive an agenda of burden sharing with subordinated bondholders. Since 2009 burden sharing measures have delivered €15 billion which would otherwise have had to be provided by the taxpayer. This includes €5.2 billion in burden sharing since 31 March 2011 following the Central Bank’s PCAR/PLAR review. ”
“Some analysts had speculated that the Popular Party government of Mariano Rajoy, prime minister, would set up a large, state-funded “bad bank” like NAMA to absorb the non-performing assets of lenders hit by the collapse of the housing bubble and the subsequent European economic crisis.
However, strong Spanish banks opposed the “bad bank” idea, arguing they could handle their own problems and that weaker lenders should if necessary be absorbed by their rivals.”
We need to get out of the EMU asap. Any truth to the rumour up to 30,000 jobs in the financial services sector in Ireland will go over the coming year? I thought I was hearing things when I heard Richard Bruton saying the financial services sector would be future source of jobs for Ireland’s economy! He was echoing the rubbish on pillar banks held together by sticky tape upward only rent reviews, ballooning private debt, rising negative equity…
My blackwhite spectacle filters mustn’t be working again 🙂
Sorry about the long post as I gathered some thoughts there, shuda divided it in 2.
I’m wondering were there any tensions between the NTMA and the Department of Finance with the NTMA banking team seconded back to the Department of Finance?
I’m a bit confused. Prof. Lane views this as a ‘nice piece, Mr. Bond and Jagdip decry it a shoddy piece of journalism while Bryan G employs it to make valid observations about the deadly embrace of EZ governments and banks – which, to a large extent, was driven by a beautiful coincidence of desires. Banks provided what governments needed to compensate their voters for wage repression or to boost their non-wage incomes and wealth acquisition (in the context of slowly growing economies on the continent) and banks were able to reap short-term profits, without any apparent risk, beyond the dreams of avarice.
Both are grappling on the edge of a cliff and if either or both let go, both could topple over. The prohibition on Ireland burning bondholders – if that’s what it really was – was simply a short-term holding job to prevent them toppling over. It has proved futile even if it is hugely costly for Ireland. Unfortunately, in the bigger scheme of things, it is just the eaten bread that is soon forgotten.
I suspect, though, that many people are not aware that Denmark’s parliament actually directs its government and this is reflected in the way Denmark is resolving problems in its banks. The increased re-assertion by parliaments of their primacy dates back to the rejection of the Maastricht Treaty by the Danes in a 1992 referendum and the requirement to vote again, and ratify it, the following year. Many Danish voters and their members of parliament were deeply embarrassed by this and resolved that governments would never again be allowed such unrestrained or unscrutinised discretion to create such a mess.
This would be a novel concept to Irish people. Imagine a parliament exercising the ultimate authority the people had delegated to it, striving to understand their voters’ concerns and to inform them of the issues and policy options and directing government to implement policies in the broad public interest. I suspect most Irish people wouldn’t believe it is possible – or that it is actually happening.
‘Official Denmark’ always wanted Denmark to join the Euro but popular and parliamentary opposition kept it out. That’s why it has some discretion to deal with its problem banks. But it is the primacy of parliament that is crucial in directing how this discretion is applied in the interests of the voters. It may be messy and a bit confusing to external observers – and might upset the purists on bank resolution – but, hey, this is how democracy works.
Ireland should try it. It might work here as well.
On a mac today gathering some notes and missed repeats, sorry again re repeats above. Software could benefit from a preview feature, but you can’t have everything, I’ll double check next time!
@ Paul Hunt
“Ireland should try it. It might work here as well.”
Indeed, not only the Danes but the german veto, parliament gave itself last October, should be followed here:
“BERLIN (Dow Jones)–Europe’s lumbering efforts to end a widening sovereign debt crisis have become more cumbersome as the German parliament is now wielding its newly created veto powers that allow lawmakers to block virtually any decision Chancellor Angela Merkel makes that commits taxpayer money to new bailouts.
Parliamentary committee meetings are normally unexciting affairs and seldom thrust themselves onto the world stage. But passage of a resolution by Germany’s otherwise staid budget committee on Friday draws the lines within which Merkel must remain when she negotiates with European leaders at a summit on Sunday and adds a new dimension to European power politics.
The resolution requires Merkel to reject any deal on the European Financial Stability Facility, or EFSF, that would grant the euro-zone bailout fund a banking license and allow it to borrow money from the European Central Bank. Merkel must also reject any deal that would expand German guarantees pledged to the 440 billion euro ($609 billion) fund that go beyond current German pledges of EUR211 billion.
“Any model transforming the EFSF into a commercial bank or increasing the fund’s financing through the European Central Bank is ruled out,” the resolution states. “In particular, the EFSF must not receive a banking license.”
Germany’s parliament voted last month to grant itself the last word on any new bailout for Greece or any other beleaguered euro-zone member, transforming the parliament into a player in European bailout politics. It is hard to say how powerful a player German lawmakers have become, but clearly Merkel is handicapped. One major reason why European leaders were forced to hold a second summit next week was because “the German chancellor must consult with her parliament, the Bundestag, before making a definite commitment.”
@ Colm
“Any truth to the rumour up to 30,000 jobs in the financial services sector in Ireland will go over the coming year”
I think there only IS ~35k jobs in the finance sector here now, right? SO unlikely to lose 85% of them!
“I’m wondering were there any tensions between the NTMA and the Department of Finance with the NTMA banking team seconded back to the Department of Finance?”
I believe that Noonan believed the NTMA to be stacked with FF-er’s, hence part of the dismantling of certain functions.
Well, the report is about what the Danes do with bankrupt “non-systemic banks”, or not? Is Anglo Irish “non-systemic”, too? What would have been the consequences if it had simply been shut down? Who are the bond holders and depositors who would have suffered? A lot of Irish pension funds and companies among them, maybe? So, wouldn’t a shutdown have triggered a domino effect, with the government being forced to keep many of those bondholders and depositors afloat, with a similarly high amount of money? I’m not so sure that alternative would have been better.
Anyway, you folks should at least be glad that Ireland didn’t follow the US example, where big banks have been saved, at the expense of the public, without nationalizing them. At least the shareholders of Anglo Irish had been wiped out. And rightly so.
@ Gray,
Who are the bond holders and depositors who would have suffered? A lot of Irish pension funds and companies among them, maybe?
From Corrigan pdf above. I’m thinking we should have more data on who the bondholders and their exposure re Anglo….but from Corrigan on sovereign debt markets
“In the sovereign debt markets, Ireland is a small player with a strong dependence on international
investors, who hold more than 80 per cent of Ireland’s long-term bonds.”
*NTMA’S CORRIGAN SAYS LOOKING AT T-BILL SALE IN JUNE OR JULY
@ Bond
T-BILL sale, good idea if we have left the euro before then, if not, he must be joking….
On the other hand, we’re doing great under the Troika and doing exactly what we’re told to do; as Hal said in 2001, ‘you’re going to find that rather difficult”
The more the NTMA act, the more they appear to act like the computer Hal in 2001. They’ve shut out rationality.
These guys brought the Troika here, brought in NAMA and continue their tilting at windmills, the rest of the population is paying through the nose for.
T-Bill sale in June or July, crazy!! I mean the Fiscal Compact hasn’t even been agreed, nothing is agreed at european level…
@Bond Eoin Bond
“Ah here now, bit of cop on pls, there’s enough silly chatter out there without adding to it.”
A question is not ‘silly chatter’ – it is just a question. Perhaps if we had all asked a few more questions in the past….
Tonight looks like being the night folks, expect Pat Kenny to interupt the Late Late to give you the heads up around 9.30pm…
DJ SEVERAL EURO-ZONE COUNTRIES COULD FACE “IMMINENT” DOWNGRADE BY S&P -EU SOURCES – DJN
FR, IT, SP, BE, and PT the expected targets.
On S&P downgrade. It aint a rumour, now almost accepted as fact – S&P will downgrade 3-5 countries tonight. Germany and Holland out of the firing line, everyone else a potential hit.
@Gray, Germany
Anyway, you folks should at least be glad that Ireland didn’t follow the US example, where big banks have been saved, at the expense of the public, without nationalizing them. At least the shareholders of Anglo Irish had been wiped out. And rightly so
In the USA the Treasury will make a net gain on the support granted to banks. In fact for the private financial services industry as whole (including AIG) it will be about break even. There’s a nice infographic from the CBO showing the estimated costs of the TARP program.
If the USA had supported banks to the same level as the Irish taxpayer, the cost would have been about $5.6tr.
TARP isn’t the whole story, of course. The taxpayer cost of bailing out Fannie and Freddie could be $200bn or greater, but even with this the bailout cost in Ireland is of a completely different order of magnitude.
It is in the EZ, not the USA, where the conveyor belt that is transferring money from the taxpayer to private banks is of industrial size and running at full speed. When EU politicians indulge in a spot of USA/Anglo-American bashing, they would prefer you to overlook this fact.
31 replies on “The Danish experience with burning bondholders”
A very useful article.
If…if…the commisars of the EBA and ECB were posessed of the least intellectual curiosity, tthey would send a technical team to Denmark, with plenty of funding to observe this natural experiment:
1) Collect extra information and data
2) Analyze same
But the ECB and EBA are ‘don’t rock the boat’ institutions – staffed by intensely legal minded civil servants
While the Irish civil service continue with their peasant attitude to money forgetting that trade is the thing. It will matter not one iota how many banks are allowed to hit the wall elsewhere.
Ireland doesn’t have 120 small banks.
What a terribly researched article, or at the very least he’s completely omitted the most relevant facts – Denmark didn’t “hone” their policy further, they more or less reversed it! This was because of the adverse reaction its banking system suffered as a result of the initial policy which saw the ‘bail in’ of depositors and senior debt.
The original policy under Banking Package III saw senior debt and depositors liable for losses, a feature which was used twice. This is no longer the case, or will not be the case in 99% of situations (in theory its possible, but in practice it seems highly highly unlikely). Under Banking Package IV, any failed bank will be seperated into a ‘Good’ and a ‘Bad’ bank. The Good Bank will be sold to a new investor, on pretty attractive terms, alongside the deposits and senior debts (because of change of ownership clauses most senior debt will be repaid straight away), and the Bad Bank will be given to the government bank rescue vehicle, with equity and subdebt most likely wiped out (assuming losses are big enough). Senior debt and depositors are now extremely unlikely to suffer a loss in the event of a banking collapse, though most of the losses of the Bad Bank will end up being bourne by the wider banking system, with the state only taking on some of the losses.
http://img.borsen.dk/img/cms/tuksi4/uploads/img_server_adm.files/728_filename_5668.pdf
Brian Di Palma:
Ireland has a lot more than 120 ‘small banks’. Thet are called credit unions, and are about to make their own solid contribution to the national debt.
@Bond. Eoin Bond
Previously you claimed the Danish policy was ‘cancelled’, and now you say it is ‘reversed’. However this is not really the case from what matters to taxpayers – the amount of public money to be spent bailing out failed banks. The taxpayer will be no worse off under Bank Package IV models than Bank Package III, which remains there as a baseline should the banking industry fail to implement Bank Package IV models. From a Danske Bank report:
More details can be found in a previous comment I had on this.
The losses will be spread across the industry as whole, rather than imposed solely on a failed bank’s creditors, but the intent is that there will be no additional taxpayer costs. While ‘honed’ may understate the change, ‘reversed’ overstates it.
@ Bryan G
the article by Beesley is about “burning bondholders” (its the central phrase of the title of both this thread and the article). The Danish government has reversed, or perhaps even cancelled, that policy. I made note of the costs being bourne by the industry in my comment above.
@ Bryan G
…finished too early there: because we own almost all of our banking sector, it would be pointless to attempt something similar here.
Ireland doesn’t have its own currency.
@Bond. Eoin Bond
I think the real relevance of the Danish experience is not to Ireland, but to the EU/EZ as a whole. Denmark is an existence-proof that setting up new rules that include an end to (or at least a huge reduction in) taxpayer bailouts of banks does not cause the sky to fall down or the ATMs to stop working. The obvious question is why is there not an equivalent effort at EU/EZ level to remove the implicit taxpayer subsidies granted to the banking industry. Rather than decoupling the banks from the sovereigns, as the IMF propose, they are being even more tightly interwoven (e.g. the indirect support of sovereign bonds via the 3yr ECB loans to private banks). Many countries have changed the rules to a greater or lesser degree (e.g. Dodd-Frank & Volker in the USA; Vickers in the UK; Danish experience etc.) but there appears to be nothing but obfuscation, silence and delays on this front in the EZ.
What a poor article. No wonder our journalists are often referred to as stenographers.
Surely a journalist would have researched better the effect of the Denmark experience. Has it raised funding costs, as is oftentimes claimed. Has it affected credit and deposits, and by extension has the Danish economy suffered. Did senior bondholders lose only 15%. What is meant by a “dowry” to attract healthy banks to take over ailing banks. Surely the EU doesn’t allow such intervention to be anti-competitive.
You wouldn’t know from the article whether or not the Danes made the right decision, or have the basic facts to form a view one way or the other. But if it was the right decision for Denmark which has seen property drop by 20pc, what does that mean for us where our property has dropped 50-70 pc.
What a poor article. No wonder our journalists are often referred to as stenographers.
Surely a journalist would have researched better the effect of the Denmark experience. Has it raised funding costs, as is oftentimes claimed. Has it affected credit and deposits, and by extension has the Danish economy suffered. Did senior bondholders lose only 15%. What is meant by a “dowry” to attract healthy banks to take over ailing banks. Surely the EU doesn’t allow such intervention to be anti-competitive.
You wouldn’t know from the article whether or not the Danes made the right decision, or have the basic facts to form a view one way or the other. But if it was the right decision for Denmark which has seen property drop by 20pc, what does that mean for us where our property has dropped 50-70 pc.
@Colm McCarthy (your 10:29pm post above)
That sounds ominous. I was wondering when the boil was going to be lanced.
Do you think whatever happens in the credit union sector this year will result in mergers/consolidation or government ownership and is it likely that people who hold savings with them lose any money? I would be interested in your view of how that’s all going to pan out.
@ PR
“is it likely that people who hold savings with them lose any money?”
Ah here now, bit of cop on pls, there’s enough silly chatter out there without adding to it. Credit unions are covered by the government guarantee on deposits, the same as the banks, no limit to this amount per person. I think Colm is referring to the €1bn that will be required to recapitalise some of the struggling CU institutions.
PR, Eoin Bond:
Sorry for being cryptic: €1 bill for credit unions is serious money – can you imagine the fuss if the credit union disaster, or the Quinn Insurance debacle to be paid for with a levy on one and all, had not enjoyed the smokescreen provided by Anglo, AIB etc?
Poor Italian auction fyi. They had rallied in massively over the last week (3yr yield 125bps lower pre-auction compared to Monday afternoon), so possibly a bit too far too fast.
What we are dealing here with is a comparison between competent, agile, creative and smart responses to the banking crisis and our own disastrous record of bleak sheep incompetence.
Not only Denmark, but also Spain have adopted this bad bad/good bank, amalgamation, based on the separation principle of minimising state liability in found solutions, not exaggerating them. Iceland outside the EMU is also a guide to good practice with its determination to force a fair deal with senior bondholders.
Here we swallow every bit of rubbish forced down our throats by the Troika or ECB. So much so, that the people largely responsible for the mess we are in, gombeens, lecture us on the danger of avoiding contagion. We swallowed that rubbish and took our 6% punishment with open arms. Of course, we didn’t save the EMU, or avoid contagion for it, but we imported more of it!
The ‘contagion’ card was our ace of spades. Threatened contagion would have the Ollie Rehn’s eating from our hands; instead, we used it against ourselves!!!
I quote from the article:
“In addition, the separation of Danish banks from euro zone lenders means contagion risk is reduced. This is important, as the ECB fears any senior bond losses in Ireland would puncture confidence in the entire stock of weakened bank debt in the euro zone.”
There is a deep management crisis at the top of the Irish decision tree, the Cardiff’s, MDonagh’s, Honahan’s plus NTMA and Department for Finance have followed disastrous policies of blind incompetence that have turned the country into a financial titanic.
The destruction wrought by the banking sector is second only to the NTMA in this regard.
“The delegation of banking system functions to the NTMA was revoked with effect from August 2011 and the NTMA banking team has been seconded to the Department of Finance. I am pleased that the staff recruited by the NTMA
form the cornerstone of the new Banking Unit in the Department and that their valuable commercial
and specialist skills continue to be utilised by the State. ”
“http://www.ntma.ie/Publications/2011/JohnCorriganOpeningStatementToJointCommittee9Sept2011.pdf”
“Through initiatives like burden sharing with the
junior bondholders and the sourcing of private capital for Bank of Ireland, the net amount of this
capital provided by the State is now expected to be around €16.5 billion.”
“Investors we have met are mostly of the view that Ireland is the best positioned of the eurozone periphery
countries to deal successfully with the crisis as it has a more flexible open economy and is recognising and taking action to deal with its problems on the basis of the measures set out in the
IMF/EU/ECB (the troika) programme. ”
“The Banking Unit has engaged with the banks to drive an agenda of burden sharing with
subordinated bondholders. Since 2009 burden sharing measures have delivered €15 billion which
would otherwise have had to be provided by the taxpayer. This includes €5.2 billion in burden
sharing since 31 March 2011 following the Central Bank’s PCAR/PLAR review. ”
http://www.independent.ie/business/european/spanish-banks-told-to-set-aside-50bn-for-bad-assets-2980248.html
“Some analysts had speculated that the Popular Party government of Mariano Rajoy, prime minister, would set up a large, state-funded “bad bank” like NAMA to absorb the non-performing assets of lenders hit by the collapse of the housing bubble and the subsequent European economic crisis.
However, strong Spanish banks opposed the “bad bank” idea, arguing they could handle their own problems and that weaker lenders should if necessary be absorbed by their rivals.”
We need to get out of the EMU asap. Any truth to the rumour up to 30,000 jobs in the financial services sector in Ireland will go over the coming year? I thought I was hearing things when I heard Richard Bruton saying the financial services sector would be future source of jobs for Ireland’s economy!
What we are dealing here with is a comparison between competent, agile, creative and smart responses to the banking crisis and our own disastrous record of bleak sheep incompetence.
Not only Denmark, but also Spain have adopted this bad bad/good bank, amalgamation, based on the separation principle of minimising state liability in found solutions, not exaggerating them. Iceland outside the EMU is also a guide to good practice with its determination to force a fair deal with senior bondholders.
Here we swallow every bit of rubbish forced down our throats by the Troika or ECB. So much so, that the people largely responsible for the mess we are in, gombeens, lecture us on the danger of avoiding contagion. We swallowed that rubbish and took our 6% punishment with open arms. Of course, we didn’t save the EMU, or avoid contagion for it, but we imported more of it!
The ‘contagion’ card was our ace of spades. Threatened contagion would have the Ollie Rehn’s eating from our hands; instead, we used it against ourselves!!!
I quote from the article:
“In addition, the separation of Danish banks from euro zone lenders means contagion risk is reduced. This is important, as the ECB fears any senior bond losses in Ireland would puncture confidence in the entire stock of weakened bank debt in the euro zone.”
There is a deep management crisis at the top of the Irish decision tree, the Cardiff’s, MDonagh’s, Honahan’s plus NTMA and Department for Finance have followed disastrous policies of blind incompetence that have turned the country into a financial titanic.
The destruction wrought by the banking sector is second only to the NTMA in this regard.
“The delegation of banking system functions to the NTMA was revoked with effect from August 2011 and the NTMA banking team has been seconded to the Department of Finance. I am pleased that the staff recruited by the NTMA form the cornerstone of the new Banking Unit in the Department and that their valuable commercial and specialist skills continue to be utilised by the State. ”
“http://www.ntma.ie/Publications/2011/JohnCorriganOpeningStatementToJointCommittee9Sept2011.pdf”
“Through initiatives like burden sharing with the junior bondholders and the sourcing of private capital for Bank of Ireland, the net amount of this capital provided by the State is now expected to be around €16.5 billion.”
“Investors we have met are mostly of the view that Ireland is the best positioned of the eurozone periphery countries to deal successfully with the crisis as it has a more flexible open economy and is recognising and taking action to deal with its problems on the basis of the measures set out in the IMF/EU/ECB (the troika) programme. ”
“The Banking Unit has engaged with the banks to drive an agenda of burden sharing with subordinated bondholders. Since 2009 burden sharing measures have delivered €15 billion which would otherwise have had to be provided by the taxpayer. This includes €5.2 billion in burden sharing since 31 March 2011 following the Central Bank’s PCAR/PLAR review. ”
http://www.independent.ie/business/european/spanish-banks-told-to-set-aside-50bn-for-bad-assets-2980248.html
“Some analysts had speculated that the Popular Party government of Mariano Rajoy, prime minister, would set up a large, state-funded “bad bank” like NAMA to absorb the non-performing assets of lenders hit by the collapse of the housing bubble and the subsequent European economic crisis.
However, strong Spanish banks opposed the “bad bank” idea, arguing they could handle their own problems and that weaker lenders should if necessary be absorbed by their rivals.”
We need to get out of the EMU asap. Any truth to the rumour up to 30,000 jobs in the financial services sector in Ireland will go over the coming year? I thought I was hearing things when I heard Richard Bruton saying the financial services sector would be future source of jobs for Ireland’s economy! He was echoing the rubbish on pillar banks held together by sticky tape upward only rent reviews, ballooning private debt, rising negative equity…
My blackwhite spectacle filters mustn’t be working again 🙂
Sorry about the long post as I gathered some thoughts there, shuda divided it in 2.
I’m wondering were there any tensions between the NTMA and the Department of Finance with the NTMA banking team seconded back to the Department of Finance?
Also…..
http://www.ntma.ie/Publications/2011/JohnCorriganOpeningStatementToJointCommittee9Sept2011.pdf
Corrigan was not tackled properly.
I’m a bit confused. Prof. Lane views this as a ‘nice piece, Mr. Bond and Jagdip decry it a shoddy piece of journalism while Bryan G employs it to make valid observations about the deadly embrace of EZ governments and banks – which, to a large extent, was driven by a beautiful coincidence of desires. Banks provided what governments needed to compensate their voters for wage repression or to boost their non-wage incomes and wealth acquisition (in the context of slowly growing economies on the continent) and banks were able to reap short-term profits, without any apparent risk, beyond the dreams of avarice.
Both are grappling on the edge of a cliff and if either or both let go, both could topple over. The prohibition on Ireland burning bondholders – if that’s what it really was – was simply a short-term holding job to prevent them toppling over. It has proved futile even if it is hugely costly for Ireland. Unfortunately, in the bigger scheme of things, it is just the eaten bread that is soon forgotten.
I suspect, though, that many people are not aware that Denmark’s parliament actually directs its government and this is reflected in the way Denmark is resolving problems in its banks. The increased re-assertion by parliaments of their primacy dates back to the rejection of the Maastricht Treaty by the Danes in a 1992 referendum and the requirement to vote again, and ratify it, the following year. Many Danish voters and their members of parliament were deeply embarrassed by this and resolved that governments would never again be allowed such unrestrained or unscrutinised discretion to create such a mess.
This would be a novel concept to Irish people. Imagine a parliament exercising the ultimate authority the people had delegated to it, striving to understand their voters’ concerns and to inform them of the issues and policy options and directing government to implement policies in the broad public interest. I suspect most Irish people wouldn’t believe it is possible – or that it is actually happening.
‘Official Denmark’ always wanted Denmark to join the Euro but popular and parliamentary opposition kept it out. That’s why it has some discretion to deal with its problem banks. But it is the primacy of parliament that is crucial in directing how this discretion is applied in the interests of the voters. It may be messy and a bit confusing to external observers – and might upset the purists on bank resolution – but, hey, this is how democracy works.
Ireland should try it. It might work here as well.
On a mac today gathering some notes and missed repeats, sorry again re repeats above. Software could benefit from a preview feature, but you can’t have everything, I’ll double check next time!
@ Paul Hunt
“Ireland should try it. It might work here as well.”
Indeed, not only the Danes but the german veto, parliament gave itself last October, should be followed here:
http://online.wsj.com/article/BT-CO-20111021-711369.html
“BERLIN (Dow Jones)–Europe’s lumbering efforts to end a widening sovereign debt crisis have become more cumbersome as the German parliament is now wielding its newly created veto powers that allow lawmakers to block virtually any decision Chancellor Angela Merkel makes that commits taxpayer money to new bailouts.
Parliamentary committee meetings are normally unexciting affairs and seldom thrust themselves onto the world stage. But passage of a resolution by Germany’s otherwise staid budget committee on Friday draws the lines within which Merkel must remain when she negotiates with European leaders at a summit on Sunday and adds a new dimension to European power politics.
The resolution requires Merkel to reject any deal on the European Financial Stability Facility, or EFSF, that would grant the euro-zone bailout fund a banking license and allow it to borrow money from the European Central Bank. Merkel must also reject any deal that would expand German guarantees pledged to the 440 billion euro ($609 billion) fund that go beyond current German pledges of EUR211 billion.
“Any model transforming the EFSF into a commercial bank or increasing the fund’s financing through the European Central Bank is ruled out,” the resolution states. “In particular, the EFSF must not receive a banking license.”
Germany’s parliament voted last month to grant itself the last word on any new bailout for Greece or any other beleaguered euro-zone member, transforming the parliament into a player in European bailout politics. It is hard to say how powerful a player German lawmakers have become, but clearly Merkel is handicapped. One major reason why European leaders were forced to hold a second summit next week was because “the German chancellor must consult with her parliament, the Bundestag, before making a definite commitment.”
@ Colm
“Any truth to the rumour up to 30,000 jobs in the financial services sector in Ireland will go over the coming year”
I think there only IS ~35k jobs in the finance sector here now, right? SO unlikely to lose 85% of them!
“I’m wondering were there any tensions between the NTMA and the Department of Finance with the NTMA banking team seconded back to the Department of Finance?”
I believe that Noonan believed the NTMA to be stacked with FF-er’s, hence part of the dismantling of certain functions.
Well, the report is about what the Danes do with bankrupt “non-systemic banks”, or not? Is Anglo Irish “non-systemic”, too? What would have been the consequences if it had simply been shut down? Who are the bond holders and depositors who would have suffered? A lot of Irish pension funds and companies among them, maybe? So, wouldn’t a shutdown have triggered a domino effect, with the government being forced to keep many of those bondholders and depositors afloat, with a similarly high amount of money? I’m not so sure that alternative would have been better.
Anyway, you folks should at least be glad that Ireland didn’t follow the US example, where big banks have been saved, at the expense of the public, without nationalizing them. At least the shareholders of Anglo Irish had been wiped out. And rightly so.
@ Gray,
From Corrigan pdf above. I’m thinking we should have more data on who the bondholders and their exposure re Anglo….but from Corrigan on sovereign debt markets
“In the sovereign debt markets, Ireland is a small player with a strong dependence on international
investors, who hold more than 80 per cent of Ireland’s long-term bonds.”
*NTMA’S CORRIGAN SAYS LOOKING AT T-BILL SALE IN JUNE OR JULY
@ Bond
T-BILL sale, good idea if we have left the euro before then, if not, he must be joking….
On the other hand, we’re doing great under the Troika and doing exactly what we’re told to do; as Hal said in 2001, ‘you’re going to find that rather difficult”
http://www.palantir.net/2001/tma1/wav/difficult.wav
Are you sure you are making the right decision?
The more the NTMA act, the more they appear to act like the computer Hal in 2001. They’ve shut out rationality.
These guys brought the Troika here, brought in NAMA and continue their tilting at windmills, the rest of the population is paying through the nose for.
http://www.palantir.net/2001/sounds.html
T-Bill sale in June or July, crazy!! I mean the Fiscal Compact hasn’t even been agreed, nothing is agreed at european level…
@Bond Eoin Bond
“Ah here now, bit of cop on pls, there’s enough silly chatter out there without adding to it.”
A question is not ‘silly chatter’ – it is just a question. Perhaps if we had all asked a few more questions in the past….
Tonight looks like being the night folks, expect Pat Kenny to interupt the Late Late to give you the heads up around 9.30pm…
DJ SEVERAL EURO-ZONE COUNTRIES COULD FACE “IMMINENT” DOWNGRADE BY S&P -EU SOURCES – DJN
FR, IT, SP, BE, and PT the expected targets.
On S&P downgrade. It aint a rumour, now almost accepted as fact – S&P will downgrade 3-5 countries tonight. Germany and Holland out of the firing line, everyone else a potential hit.
@Gray, Germany
In the USA the Treasury will make a net gain on the support granted to banks. In fact for the private financial services industry as whole (including AIG) it will be about break even. There’s a nice infographic from the CBO showing the estimated costs of the TARP program.
If the USA had supported banks to the same level as the Irish taxpayer, the cost would have been about $5.6tr.
TARP isn’t the whole story, of course. The taxpayer cost of bailing out Fannie and Freddie could be $200bn or greater, but even with this the bailout cost in Ireland is of a completely different order of magnitude.
It is in the EZ, not the USA, where the conveyor belt that is transferring money from the taxpayer to private banks is of industrial size and running at full speed. When EU politicians indulge in a spot of USA/Anglo-American bashing, they would prefer you to overlook this fact.