The new QB provides an update on its analysis and forecasts – here.
There are two interesting signed articles:
- Measuring the Value Added of the Financial Sector in Ireland
- The Usage, Cost and Pricing of Retail Payments in Ireland
(the latter indicates a very big payoff to pushing further the move to electronic payments systems, with cheques still playing a large role in Ireland)
and also a new Economic Letter:
19 replies on “New from Central Bank”
Value added? My initial reaction was the John McEnroe retort ‘You cannot be serious’. In fairness to the authors I must attempt to read the document. Box 2, however, confuses me, as it seems to indicate that bad debts don’t count. I couls be wrong in my interpretation of what the authors are saying but here is Box 2.
“Furthermore, writing-off debt and increasing provisions against bad debts is not part of GDP, even though this has been the key determinant of bank losses within their published financial statements. Realised losses also do not impact on GDP but are reflected in a decline in the balance sheet of the relevant sector. This is particularly important for Irish banks in the context of loan transfers to NAMA. Haircuts applied on the sale to NAMA contribute directly to losses in published financial statements. These are recorded, however, as holding losses and a reduction in assets on the balance sheet of the financial sector within the national accounting framework. This is not part of production activities and, therefore, is not part of GDP. Increased provisioning for loan losses is regarded as internal book-keeping entries within sectors and is not recorded within the international statistical system. In summary, GDP is derived from real transactions in goods and services between economic entities. Non-transaction effects arising from distributions of income or debt write-downs are not measured as part of GDP for any economic sector. The application of this framework explains, in part, why the value added of the banking sector has remained positive following the crisis, despite large losses being recorded in their published accounts”
So the banking system seems to have value added, if you ignore the dud loans that will not be repaid?
Is that a fair interpretation?
The Central Bank does not accept debit/credit card payments for across the counter numismatic coin sales. I don’t know if it still takes cheques, but it used to until a few years ago.
Re: The Economic letter and bank interest margins.
A very welcome report on the most critical health issue for any bank or indeed any business.
However I would like some clarification on the calculation of the ‘net interest margin%. The report states:
“The net interest margin is defined as the ratio of net interest income to average interest earning assets”
But how do the Irish banks derive their interest income figure. The report does not comment on that.
The methodology for deriving interest income is open to a significant degree of subjectivity. Such subjectivity may be largely irrelevant in normal times when most loans are performing, but the methodology could lead to very misleading conclusions where a significant portion of the loans are non interest bearing.
It is possible to get a situation where interest income is significantly understated, with an offsetting understating of the bad debt provision.
The inclusion of ELG in the net interest calculation is also questionable. In reality if not legally, it was a tax measure to attempt to recoup some of the money from the banks. The ‘guarantee’ element was an impossibility from the word go.
Yes, a shorter summary of the GDP capture would be:
“Never mind the quality, feel the width”.
This character of banking fed into the debate in the US about productivity (or rather, apparent productivity) about 3 years ago.
April 5, 2013. Another bank goes under. Doesn’t even make the the local TV news in Phoenix. No national suicide pact.
When you close down failed banks every week you get really good at it.
Quite so…it’s crazy!
Joseph Ryan, you’re right on the money.
How bizarre that not only is the banjaxed financial system contributing to GDP but it is doing so at a much higher rate than the European average. In 2011, the contribution matched 2006 — the craziest year of the bubble.
Alas, this isn’t the only leprechaunic flight of fantasy in the GDP data and in this case the interpretation of the Central Bank in the Quarterly Bulletin:
This is absolute nonsense from the independent central bank and my understanding from the external monitors is that they at least know that.
This distortion of reality is similar to what went on during the bubble.
A 15% rise in computer services exports in 2012 does not reflect competitiveness but mainly tax-related intercompany accounting transactions. If economic growth can be created like this, then there is no need for anyone to do a day’s work.
Ronnie O’Toole’s paper is interesting in particular as regards SMEs.
At a Google event in Dublin in 201 it was said that 40% of SMEs didn’t have a website. So the level of IT competence maybe limited.
Where there wouldn’t be a finance function and where there would be need for two approvals of a payment, the old routine of the cheque tagged onto supporting documentation continues. However, it is likely that some companies that stick to this routine, prefer to receive debtor payments electronically.
As for promoting a cashless society, reliance on cards can have a social cost.
At a Google event in Dublin in 2011…
I do not see a single reason why the banking sector should be larger in Ireland than in any other Eurozone country (same with the building industry) .The present state of affairs ,knowing that the Irish bank management has proved itself to be one of the worst ,is an invitation to disaster,Cyprus type . I know that closing half of the remaining banks will create a big social problem ,but I do not see any alternative.
If the provisions for the mortgage problem were realistic ,the bank’s equity would be negative and I do not think that the Irish taxpayer has the stomach for another bailing out of the banks .When the ECB will be in charge of bank regulation a violent conflict seems unavoidable between the Irish government and the rest of Europe.
“As for promoting a cashless society, reliance on cards can have a social cost.”
Has everyone forgotten the Ulster Bank fiasco last year? You how to wonder why they outsourced to India when we are meant to have a “knowledge economy” (or whatever is the buzzword to describe government delusions
OMG! They’re writing about Ireland over at Zero Hedge.
I guess we’re doomed.
Can you or someone please explain what exactly is all fuss that Zero Hedge and the like are making.
Of course, the bondholders and the depositors will be burned/drowned when the next round of Irish bank collapse occurs.
The taxpayer is fully tapped out.
@ PR guy
“I guess we are doomed”
We won’t be going down alone. France seems to be on quite the shaky scraw.
I was listening to the a CD the kids put together the other day
This one reminded me of the bailout
“Tonight I will love, love you tonight
Give me everything tonight
For all we know we might not get tomorrow
Let’s do it tonight
“Forget what they say
All my cares, they play
Nothing is enough
‘Til I’ve had enough
(Let’s do it tonight)
I want you tonight
I want you to stay
I want you tonight”
“I do not see a single reason why the banking sector should be larger in Ireland than in any other Eurozone country (same with the building industry)”
How about the IFSC as a reason? If banking wasn’t appearing as a larger proportion of Irish GDP than the Eurozone average, that would be quite odd. Similarly, you would expect Malta, Luxembourg and Cyprus also to be outliers.
Has the IFSC been beneficial to Ireland any more than the bloated banking system of Cyprus has been a success ?
A case can be made that the City has a special expertise in international finance (although it has been very expensive to the British taxpayer in 2009), none that such an expertise exists in Ireland.
The oversize banking system has two causes:
1) The housing bubble which left the Irish public with the highest private debt in the western world and hundred of thousands of Irishmen with negative equity.
2)The efforts to transform Ireland into a tax heaven . This is getting under more and more pressure from the American legislator and the European partners .As soon as Ireland will leave the presidency of the European council the pressure will resume.
The real question is :Is this banking system sustainable?
I think it isn’t.
Another question is it in the Irish public best interest to have a banking system so big that a new banking crisis can bring the Irish economy in a catastropic recession for a second time?
Harry McGee has a very interesting article in the IT about Labour that goes into the area of work schemes and effectiveness
“Take the commission’s staff report and a passage dealing with community employment schemes. It noted that over half of the €870 million being spent on employment support schemes in 2012 was devoted to work programmes, in particular community employment.
The report acknowledged that these schemes serve a definite social purpose but continued: “[They] have, at best, an extremely weak activation and back-to-work component, and, at worst, trigger ‘subsidised employment traps’.” The report refers to a review that recommends such programmes be more geared to promoting a return to the open labour market.
The IMF report argues that such community employment schemes cost twice as much as education courses.
But there is two inherent flaws to those arguments. The first is contained elsewhere in the staff reports. The rate of unemployment has risen since 2008 to over 14 per cent and 30 per cent of those have been unemployed for over two years. Sure, there are areas where there are skills mismatches but the prospect in the short to medium term of vast numbers returning to the “open labour market” is zero.
And the “social purpose” element of community employment schemes should not be underestimated. They are popular with political parties of all hues and brook no resistance. Besides providing employment they are seen to have a tangible, visible benefit to the parishes and neighbourhoods they serve. In a scenario where being private sector job-primed is not realistic, other factors have to be considered including the dignity of work, the sense of doing something worthwhile, having a structured week and a routine, and learning new skillsets that may or may not be useful in the workplace. Few involved in public life would even begin to identify with their portrayal as “subsidised employment traps”. “
“The taxpayer is fully tapped out.”
ECB/Troika/BB/and many others I can’t be bothered to name: “Oh no they aren’t!”
Taxpayers in many European countries: “Oh yes they are!”
(Keep repeating until the pantomime ends or the fat lady sings or there’s a new TIT – ‘template in town’ – that covers deposit holders <100k)
You can trademark ‘TIT’ to me as I just made it up a few seconds ago and please let me know it any journalists start using it and pretend they made it up themselves. I also made up SPIT (southern peripheries in trouble) recently on this blog.
Whose song is that? Meatloaf? Bonnie Tyler? Can’t quite put my finger on it and can’t be arsed to look at Youtubby…… and can I have a pint of whatever you are on please 🙂
Work for my Swiss masters over in the UK is becoming a bind. There’s so much these Swiss guys simply hide from one (which is not a good thing to do with your PR Guy)/are convenient with the truth about. Something is not right in Swizz-terland. Can’t quite put my finger on it yet but there’s consternation that’s for sure. I will report back when I know.
Time for a glass of wine…….. it’s been a long week and it’s only Monday.
Not sure if this article was published 7 days too late for April Fool’s.
“European and Asian governments remain committed to backstopping losses at their own too-big-to-fail banks. So if U.S. companies are looking for low-margin, taxpayer- subsidized lending, they can still get it.
If foreign governments want to support the underpricing of risk and the uneconomic lending that has repeatedly harmed their taxpayers, why not allow our corporations and consumers to benefit? Let other countries’ taxpayers bear the costs. The U.S. should lead the world in productivity and not be relegated to competing in a race to zero.”
Pitbull. I could also suggest carly rae jepson’s call me maybe for the euphoria of initial Euro entry. “before you came into my life I missed you so bad” etc
Re wine I got la revue de vin de France this month. Feature on 03 bordeaux. 20 euro for a bouteille of Larcis Ducasse rated 16.5/20 and will keep value more than any french bond probably the way things are going. CH is strange at the moment.
From Business Insider
“European Government Borrowing Costs Are Plunging — And It’s All Thanks To Japan”
Just wondering if some thanks should also go the the “Dijsselbloem Template.” Sovereign debt is now in a more secure position. Bond holders and uninsured depositors to be tapped first when banks fail — as it should be.