In the past couple of weeks, the Oireachtas Committe on Finance and the Public Sector met with the authors of the two forthcoming preliminary banking inquiry reports, Klaus Regling and Governor Honohan (Regling was accompanied by his assistant Max Watson). The transcripts of these meetings are now available online here and here.
Author: Karl Whelan
Last week, the IDA launched its new strategy document “Horizon 2020.” Michael Hennigan has a critical article on the strategy in today’s Irish Times.
Bundesbank president Axel Weber gave a speech on “The Reform of Financial Supervision and Regulation in Europe” today at the Institute for International and European Affairs. The Institute has provided the text of Weber’s speech and an audio podcast here.
Update: Thanks to Michael Hennigan for noting that the impressive Mr. Weber also gave a completely different speech to Financial Services Ireland on the same day, titled “Making the Financial System more Resilient – The Role of Capital Requirements.” Link here.
Here‘s a link to the latest set of briefing papers for the European Parliament’s Economic and Monetary Affairs Committee. One set of papers (including one by me) focuses on global imbalances and the role they played in the financial crisis. The other set of papers focuses on European fiscal issues. These papers include a summary by Daniel Gros (CEPS) of his proposal with Thomas Mayer (Chief Economist of Deutsche Bank) for a European Monetary Fund.
These briefing papers are provided to MEPs on the committee prior to a meeting they will have with ECB President Trichet on March 22nd at which these and other issues will be discussed.
Following the approval of NAMA by the European Commission, the Department of Finance has published revised guidelines in relation to NAMA’s pricing of assets. This is a revised version of these regulations released before Christmas. Based on a quick read, there are appear to be a couple of changes, both of which show that the Commission is pushing the government towards paying lower prices.
The first relates to the discount rate used to value cash flows when coming up with long-term economic value. These had provided for an adjustment of 0.8 percent above the relevant government bond rate. This adjustment is now 1.7 percent. This change will lower the value of the assets.
Government bond rates are, of course, lower now than they were last September. This is probably what the Minister was referring to when he said “There will, however, be a reduction in the interest rates used for loan discounting purposes” a comment widely (and now it seems incorrectly) reported as being related to the Commission’s recommendations. We see now that the Commission’s recommendations, taken on their own, will imply lower prices paid.
The other change I can spot relates to the (to me) mysterious “Standard Discount Rate”. The regulations for this used to be as follows.
The standard discount rate that NAMA shall apply in the calculation of the long-term economic value of all bank assets shall be 2.75 per cent to provide for enforcement costs, and 0.25 per cent to provide for due diligence costs.
The 2.75 percent is now 5.25 percent. From previous discussions, the prize for best answer as to what the standard discount rate was went to Frank Galton: NAMA LTEV = LTEV*(1-Standard Discount Rate). Assuming that’s correct, then this latest change would also imply lower prices. Anyone who understands the standard discount rate (or can see any other interesting changes) feel free to explain it to us.