The New Banking Data for Ireland

The aggregate banking data for Ireland has been difficult to interpret due to the large volume of international banking activity that is routed through Dublin but which has little to do with the domestic financial system. In a welcome development, the Central Bank has re-organised how it publishes the aggregate banking data. In addition to publishing data for ‘all credit institutions’, it now also publishes data for ‘credit institutions (domestic group)’.  Data and explanations are available here.

In approximate terms for June 2010, the domestic group accounts for 59 percent of the aggregate balance sheet of all credit institutions but 87 percent of domestic deposits and 87 percent of domestic loans (94 percent of loans to domestic private sector).

International Data on Property Prices

There is no international standard for the reporting of property price indices.  However, it is still very welcome that the BIS has now made public its database on property prices for 37 countries. Details (and spreadsheet) available here.

Selling State Assets

Paul Sweeney criticises the idea of selling State-owned entities in today’s Irish Times: you can read his article here.   Paul Sweeney’s contribution is incomplete. In particular, he does not fully address some key issues (I raise these points as questions, without having answers)

  • Liquidity.  If a government faces funding risk, selling valuable-but-illiquid assets may reduce the risk of a funding crisis.
  • Ownership and firm performance.  While Paul Sweeney highlights the potential inefficiencies of privatised firms, he does not have much to say about the possible inefficiencies of State-owned firms where the management or workforce may have objectives that are not fully aligned with the common good.
  • Regulation.  Where monopoly power is a severe problem,  regulation is necessary. Can the Irish regulatory system be made more effective to ensure that sectors inhabited by monopoly-type firms deliver efficient outcomes? Does the identity of owners affect the effectiveness of regulation?

Paul Sweeney also highlights the increasing importance of State-owned firms in Asia, Russia and Latin America. It would be good to know the exact lessons to be drawn for countries such as Ireland from this development.

The Future of Finance: The LSE Report

The LSE recently brought together a group of distinguished experts to study the future of finance  – the e-book and individual chapters can be downloaded here.

The State of the Public Finances

Much of this morning’s media coverage of the latest ESRI Quarterly Economic Commentary (summary here) has focused on the ESRI’s projection that the 2010 general government balance will be a deficit of 19.75 percent of GDP, which is the sum of the ‘underlying’ deficit of 11.5 percent of GDP and the capital transfer into Anglo/INBS of 8.25 percent of GDP.  (Based on the reasonable assumption that Eurostat will adjudicate that the infusions into these banks indeed are capital transfers rather than financial investments.)

This is not really a surprise –  the scale of the bank bailout was announced back in April and the accounting issues were dealt with on this site at that time (see here and here).  In terms of investor sentiment, the bad news should have been incorporated at that time.  Sophisticated investors will understand the distinction between non-recurrent capital transfers and the underlying deficit and also the distinction between accrued liabilities and this year’s funding needs (the use of promissory notes limits the extra funds required this year).

However, beyond the accounting issues, the increase in the government’s liabilities remains a substantial economic and financial cost.  In terms of the trajectory for the public finances,  debt sustainability requires that an increase in liabilities is met over time with a higher primary surplus  – the government will need to raise more taxes and/or cut spending to service the extra liabilities (unless serendipity means that the extra liabilities coincide with a matching upward revision in the forecast for GDP growth).

The next version of the government’s multi-year fiscal framework will need to specify how the opposing forces of the improvement in GDP forecasts and the increase in debt liabilities feed into plans for taxes and spending.