A Brave Speech from the Irish Central Bank – The Missing Paragraph

This post was written by Gregory Connor

The Director of Credit Institutions and Insurance Supervision at the Irish Central Bank, Fiona Muldoon, has been widely praised for her speech to the Irish Banking Federation, calling for faster action by the banks in dealing with the mortgage arrears crisis.  The speech makes clear that the damaging nexus of the former Fianna Fail government, linking the politically connected property development industry to the banking industry and an overly compliant bank regulator, is no longer in place. The Irish Central Bank is now able and willing to stand up to the industry that it regulates in order to protect the public interest, and it is supported in this stance by the ruling coalition. This is an important positive outcome.

The speech was a step forward, but it was not an unusually brave speech, despite the impression one gets from the wide praise it received in media coverage. A truly brave speech would not be widely praised, since it would need to unsettle people rather than confirm their existing beliefs. The speech ignores a big part of the reason for the mortgage arrears crisis – the deep-seated Irish political aversion to house repossessions. Without facing up to this big part of the mortgage arrears crisis, there will be no solution.  Here is an extra paragraph, offered with proper humility, which might have changed Fiona Muldoon’s partly brave speech into a truly brave speech. I have kept the “teenagers” motif, which was a clever oratorical device in the original speech.

“I cannot come here and give a speech about mortgage resolution without once mentioning repossessions; that would be cowering. The notion that 167,000 mortgages-in-arrears can be resolved without a substantial proportion of repossessions is delusional. We on the senior Central Bank staff could give speeches ignoring this reality, thereby pandering to political sentiment, but we will not do so. Meanwhile, the government’s most recent attempt at reforming Ireland’s repossession laws was a shambles, and virtually the entire law was declared invalid by the Justice Dunne ruling in July 2011. This has left Ireland, and it’s banking system, with virtually no repossession system at all since that date. Rather than fix this urgent legislative cock-up of its own creation, the government has chosen to ignore it and pretend that it will go away. The ruling coalition is acting like a bunch of teenagers; blaming everyone else in the household for their problems while neglecting to do their own homework.”

23 Responses to “A Brave Speech from the Irish Central Bank – The Missing Paragraph”

  1. Gtfaway Says:

    Culture eats strategy. We don’t do repossessions for historical political reasons.

  2. Kevin Lyda Says:

    If we can spend the past four years bailing out banks without any of th people involved facing serious consequences, I have to wonder why repossessions *must* be on the table for cramdowns.

    And I’m being serious.

    We gave €1 billion to AIB the other week. And we’ll no doubt need to do it again.

    So why not change the way we give them the money. Next time we need to give AIB money, take amount-they-need / number-of-mortgages off every mortgage. Same for BOI or any other bank. Those of us with mortgages at non-Irish banks are out of luck, but at least this way *some* regular folks are getting the benefit of the firehose of euros that has thus far exclusively been trained on the wealthy professionals who played a large role in creating this crisis.

    I just find it stunning that every time any policy might just possibly benefit the poor and middle class, scolds like Mr. Connor must come out and wag their finger about consequences. Where was the finger wagging as we spend hundreds of billions on broken banks; when do we discuss the consequences there? Because I’m not seeing any.

  3. Brian Woods Snr Says:

    @ GO’C: “… is – the deep-seated Irish political aversion to house repossessions.”

    “Really, Gregory?” And what to do with the repossessed? Get a sense of reality Gregory. Miltonian assumptions will no longer suffice.

  4. What Goes Up... Says:

    @Gregory Connor

    Why would the banks repossess?
    Why would the Central Bank berate them to repossess?
    Why would the government legislate to allow repossessions?

    The banks are getting money anyway (they don’t need to take negatively priced collateral back on to their books and reprice accordingly), the Central Bank doesn’t need to have the banks reprice their loan books (and make a mockery of their stress tests), and the government don’t need the zombie banks being zombier (nor the optics of “Poor Paddy” being thrown to the wolves by the zombies).

    In fact the banks are delighted because they get free money without having to do any work for it.

    For a group of people who have made such a mess of running companies in the first place that they have ALL been priced to zero (and should cease to exist, replaced by new, fitter, healthier entrants) - to now be 1) saved and 2) recapitalised must make them feel like they are TBTF - and thus, they are too important to be chastised by soon-to-be-recaptured regulators and fly-by-night politicians.

    And so some of the greatest business failures of the last 1000 years, now think of themselves as systemically important and implicitly guaranteed.

    REMEMBER! If you don’t kill the zombies… they’ll eat your brains!

  5. Joseph Ryan Says:

    @Gregory Connor
    Repossess BTLs by all means. No problem.
    But could you explain the economics of repossessing say ~50,000 owner occupier houses in monetary terms to the State over say a five year period, given that a large % of the mortgages are owned by the State and the commitment of the State to provide shelter / accommodation to all families.

    You are of course fully correct in pointing to what now seems to be the deliberate ineptitude of the government to tackle any law that protects powerful interests. The BTL landlords are very powerful interest group, with at a guess, a goodly number of TDS and Senators amongst them.

  6. Robert Browne Says:

    The problem with the “repossessions’ is that the long suffering people or Ireland may then decide in short order to repossess the jobs of those who are responsible for such “cram downs” and that was probably as much behind Justice Dunne’s ruling as much as the points of law. A complete absence of regulation by the ICB and regulator 170 different tax breaks to propel the market forward NAMA and IBRC gravy train to rescue the professions, while blanket guarantees for bondholders from here to China and now an erudite professor, nonetheless, is bemoaning the fact that the wobbly pillar banks are not, having been rescued themselves, tufting their customers out of their homes quickly enough? Well do you know what Gregory? As a means of propelling us into making the revolutionary changes that we need to make to our society it might actually be the way to go.

  7. brian lucey (@brianmlucey) Says:

    a brave post. GTFaway has a point however, as have others. I dont count you amongst them but far too many economists are buck ignorant of culture, as a mediating variable in economic relationships. Geert Hofstede, Bob House and Shalom Schwartz are amongst the most cited and influential social scientists, just not (remotely) among economists. Indeed, many doubt the value and use of such efforts. We have in ireland a culture that doesnt do repossessions. I agree that this is a friction in the system preventing market clearing. But ill live with it.
    There are many such frictions - we can solve many many more much simpler than trying to change a long embedded national culture.

  8. brian lucey (@brianmlucey) Says:

    Dammit . Forgot again

    Ceterum censeo IBRC delendam esse

  9. Mickey Hickey Says:

    Foreclosures can be implemented on a large scale in Ireland if the procedures are deemed to be fair.

    The mortgage debtor must be given the option to buy the house for the price realised at an open and transparent foreclosure option. If they can make the monthly payments and as long as they make the monthly payments then the house is theirs.

    There are always special cases such as single parent families, the disabled, families with a number of children under 16 and so on. The Gov’t can subsidise those people without incurring a widespread backlash.

    The banks get market value, the family in distress gets market value. The market rules without fear or favour what could be fairer than that.

    The banks must be forced to auction all properties that are more than 180 days in arrears. Grab the nettle by the head with both hands and quickly pull it out of the ground. The quicker you do it the less pain you will suffer.

    Can this be gamed, resoundingly yes. Have we not been gamed by the Irish Gov’t, European Commission, EZ, ECB and last but not least our very own ICB. We repeatedly vote for chancers to game the system in our favour. We do not have valid grounds to complain.

  10. John O'Brien Says:

    Aswell as giving life-imprisonment to those found guilty of ruining this country, a lot of ordinary people DO want to see repossessions, especially in cases where the borrowings were insane (more than 5 times salary), then the prices can come down to a level where ordinary people can afford them (they never could during the Ponzi Scheme that some of you call a boom). Property is still too high in most of Ireland wrt economy/jobs etc., and why should we not let capitalism work when it’s in the interests of the ordinary people. Prices went up 4 or 5 times, but have only come down by 50 or 55%, & if we let capitalism work then prices should come down so that ordinary people with their little savings can buy a home for say 20k or so.
    But instead vested interests conjure up 19th Century images involving the British etc., very dishonest, but what do you expect.
    There is no socialism nor capitalism in Ireland, just a feudal system masquerading as a sort-of liberal capitalist system (with some social protection) but really protecting the elites and changing the rules as we go along when necessary so that they can continue to do so.

  11. PR Guy Says:

    “The speech makes clear that the damaging nexus of the former Fianna Fail government, linking the politically connected property development industry to the banking industry and an overly compliant bank regulator, is no longer in place”

    Yeah, everything is hunky dory these days.


  12. PR Guy Says:

    p.s. None of the banks I have ever worked with particularly give a toss about historical political considerations. It’s what’s best for them at the time that drives any particular action/policy. When it suits them to change the current zeitgeist they will.

    If you think otherwise, you want your head examined.

  13. Ahura Mazda Says:

    1. I thought the historical thing was to do with landlords evicting tenants. That’s not the case with mortgages. It’s probably fair to say that defaulting mortgagors get better treatment in Ireland than tenants. Is there a social justice issue to subsidise defaulting borrowers acquire an expensive asset over tenants?

    2. It is not true to say that we have already given the banks money to pay for debt forgiveness. a.) the blackrock calculations were done on the basis of foreclosures b.) we gave the banks capital - if this is not absorbed by losses then the banks will be worth more and the taypayer losses will be lowered.

    3. What is the maximum amount of money that could be given as debt forgiveness? If you’re looking at significant amounts, then people who are willing to pay their mortgage may think twice. 20/30k might make bugger all difference to distressed borrowers but 100k would encourage others to default.

    4. What happens when a defaulting borrower has equity at current market values? Asset backed lending kinda assumes recourse to the asset. Are we saying Irish mortgages are different. If so, as a taxpayer on the hook for bank losses, I want government owned lenders to stop new mortgage loans immediately.

  14. Robert Browne Says:

    @ Ahura Mazda

    Just on one point above.

    “if this is not absorbed by losses then the banks will be worth more and the taypayer losses will be lowered.” Who is the taxpayer?

    Are you making the false assumption that those defaulting on mortgages are not tax payers? They are not mutually exclusive many of these people are still at work paying the full panoply of taxes. In fact, their incomes, having come under relentless attack, are no longer sufficient to pay the mortgage on their homes. BTL are separate but related problem are now touching 35bn of impairments, eventual losses on those will be more immediate because it is easier to walk away emotionally from those loans but even those losses will be anything from 12bn to 20bn of the current figures.

    Banks were given 12bn to absorb these losses but because they are allowing the whole thing to fester they will end up needing another 30bn at least for further recapitalization. It is the same old story, failing to connect the dots. The trail of dots only lead to the gates of the bank centre in Ballsbridge and the edge of the road in Baggot Street they don’t connect with the world outside.

    Personally, despite all the talk of being well capitalised I believe they are caught in the head lights of a second wave of defaults that they are afraid will wipe them out. This time the state have run out of ammunition unless they go for bailout No. 2 Gilmore has denied that so I guess he knows we need one.

  15. Kevin Lyda Says:

    The historical stuff is possibly interesting as well, but it seems to me that current events are more relevant. We refuse to actually nationalise banks, but we’ll repossess people’s houses. We refuse to hold anyone in the gov’t or banking world accountable - but if it’s a homeowner then we have a four year and continuing conversation about moral hazards.

    A truly brave economic speech would start discussing ways for those responsible to be held accountable. It would discuss ways for some of the billions being shoveled towards the wealthy being spent instead on the poor and middle class.

    Apparently that’s a level of bravery no one in power is capable of.

  16. zhou_enlai Says:

    The banks are not the only ones who lack a reposession mechanism. financially stressed homeowners with unsustainable and unservicable debts continue to be debt slaves 5 years on from the start of the crisis and 4 years on from the bank guarantee.

    Homeowners have no entitlement to force the bank to repossess becasue we still don’t have a proper personal insolvency regime. The financially distressed homeowner needs to be able to take the nuclear decision to go for insolvency, and thereby to automatically convert the negative equity portion of the mortgage debt into an unsecured debt in an insolvency process. Only then will banks embark on properly resolving mortgages.

    We might also get a proper home rental market as a bonus.

  17. zhou_enlai Says:

    @Kevin Lyda

    Your criticism of the four-year long stupid debate about moral hazard is well made. Even last night Phil Hogan was on The Week in Politics saying that we had to guard against the “won’t pay” types. FG must think this appeals to older voters with no mortgages.

    In the meantime, the “won’t pay” problem would be solved by a proper efficient personal insolvency regime. The “won’t pay” problem is becoming a reality because of the uncertainty and wishful thinking that has filled the void which has developed because of the inexcusable delay in introducing a personal insolvency regime. It seem the won’t pay types don’t read draft legislation. (Perhaps if more young people won’t pay the generational arbitrage might stop quicker!)


    @Kevin Lyda

    1. We *didn’t* give AIB €1bn “the other week”. It was given a long time ago. What happened the other week was contemplated when it was given. This is not mere pedantry - double-counting is rampant in these discussions, even if you happen not to be guilty of it.

    2. We *have* nationalised the banks.



    I find myself in - that rare place - agreement with Brian Lucey in that I too can live (up to a point) with our cultural aversion to repossession.

    Some, however, are confusing aversion with an almost fetishist refusal to countenance it at all.

    My own position is that I think that the viability of individual mortgagors (=the borrowers) should be assessed as if they had purchased at non-Bubble prices. If it is clear that over-paying for the house is not the fundamental problem, then much less forbearance is appropriate.

    Even if it *is* the fundamental problem, some acceptance by the borrower of responsibility is normally fair enough, but not always, and never to the same extent.

    There are practical problems with this approach, but I am dismayed by how resistance to it is so often not just practical but ideological.

    Be that as it may, I tend to agree that more repossessions should be happening. Those that reach the courts still seem mainly the outlier extremes where no payments at all are being made.

    Not coincidentally, the asking prices of houses (though less than 50% of peak, we are told) still seem too high when measured against rental levels. Anecdotally, I hear that some sales are occurring at above asking price. The banks also say that they are open to mortgage applications for up to 92% of cost, and that loans are being made. I am not sure that the credibility of either of the latter two sentences is high, but if it is, another cohort of buyers is being let down by the system.

  20. PR Guy Says:

    @Ahura Mazda

    “I thought the historical thing was to do with landlords evicting tenants”

    These days, it’s more likely that the landlord is the one in arrears with the mortgage on the property. How times have changed eh?

  21. Mark Says:

    There should be no repossessions of residential properties prior to extensive mortgage writedowns.
    As I posted earlier, the most extreme cases saw ex-council houses go from 25k to >400k in twelve years. But even the more typical 80k£ to 450K€ in the same period gives a sufficient indication of the problem.
    A Home - Not a commodity, but a human right.

  22. EWI Says:

    @ Robert Browne

    Are you making the false assumption that those defaulting on mortgages are not tax payers? They are not mutually exclusive many of these people are still at work paying the full panoply of taxes. In fact, their incomes, having come under relentless attack, are no longer sufficient to pay the mortgage on their homes.

    It wouldn’t take much searching in comments threads here to find the opinion being expressed that public servants and the poorer sections of society aren’t “taxpayers” (helped by steadfastly ignoring the many tax-breaks and subsidies of the middle class, to boot). I am going to be charitable and assume that I won’t find your name among such antisocial elements…

  23. Yields or Bust Says:


    I have argued with you on this point before but for some reason you don’t seem to appreciate the linkage between house prices and the actions of the lending banks.

    I’ll repeat this once more - BANKS PRICE PROPERTY - it may be hard for the normal Joe to get this idea but surely not for an economics professor. House pricing has virtually nothing to do with the actions of the house buying consumer its all to do with the lending bank and their credit distribution model. This matters hugely. Your comments are written, it seems to me, absent this fact about the housing market and as result I cannot agree with your so called ‘solutions’.

    Since about the mid sixties in the RoI c95% to 98% of all residential property transactions would simply not complete unless a 3rd party lender allowed it so. This makes the property market unique amongst virtually every other asset market because it lives or dies by the interaction of the lending banks and their willingness to lend to it on a consistent basis for it to remain fluid – no other asset market has similar attributes and therefore suggesting that simple solutions as you describe to a much more complex asset pricing market are required to ‘fix’ same, are surely misplaced.

    The past 4 years has hammered this bank/lender interaction within the housing market home time and time again - without credit the market for all intents and purposes stops and prices collapse to price points where consumers can transact in the absence of credit. We know that this means transactions in a credit-bereft marketplace should be tiny compared to the ‘norm’ and that’s exactly the position the market finds itself in today.

    The ongoing issue, and I repeat this once again, is that in any market where the key ingredient used to price (not value) the asset in that market, which is under the control of a very small cohort of market participants, that cohort group will control prices charged in that marketplace. Consumers as a result are always price takers, there is virtually no scope for price bargaining when that key ingredient is present – that key ingredient in the housing market is credit and its availability. This is basic stuff.

    Where does this leave us? It leaves us at a point to where any reasonable person would seek to go to i.e. an examination of the prices charged by those who priced the assets in the market in the first insatnce. By any basic examination the prices charged in the years c2001 to c2010 were simply wrong. The long run value metrics (not pricing metrics) used to determine fair value in property markets, they being long run rental yields, were simply not adhered to by those pricing the products for sale in that period.

    As indicated above consumers who purchased in that period were simply overcharged and had little or no means to bargain down prices. Given this outcome I’m simply amazed, given the evidence regarding the banks business models all having collapsed in the meantime because of these pricing errors, that contributors such as yourself would suggest that a fix to this error is to potentially impose significant social hardship on the overcharged consumers who were unfortunate to have transacted in the period as mentioned. This must indeed be an economical first i.e. consumers lose control of their purchase because the retailer goes bust due to overcharging the consumer in the first instance. It even reads daft, but obviously economics professors know better. Only in Ireland.

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