Philip Lane

There is an FT op-ed today by Hau and Sinn, which is mainly about the importance of ensuring sufficient creditor bail-in to limit calls on taxpayers in the event of a crisis. However, it also argues that the ECB has gone too far in providing liquidity against distressed collateral in the periphery. You can find it here.

There is a guest article by Avinash Persaud in The Economist here. Persaud is concerned that a single supervisory mechanism will lead to “one size fits all” regulation of banks across the euro area, so that the response to country-specific asset bubbles may be inadequate. It is not clear to me why a unified approach to regulation is inconsistent with the implementation of country-specific macro-prudential measures.

Information Release 28 January 2013

The Central Bank of Ireland today published the signed articles Why are Irish Non-Financial Corporations so Indebted and Housing Equity Withdrawal Trends in Ireland from the Quarterly Bulletin 1[1] for 2013.

The research found that Irish Non-Financial Corporations (NFC) are the second most indebted in Europe after Luxembourg when debt is measured as a percentage of GDP[2]. However when debt is measured as a percentage of their balance sheet size, NFCs in Ireland are relatively less indebted and fall below the eurozone average[3]. Results show that aggregate indicators can mask some underlying problems within particular NFC sub-sectors and therefore the use of a single indicator for the sector as a whole, in isolation from other data, can be misleading.

Irish NFC debt increased from 147 per cent of GDP to 204 per cent between Q3 2008 and Q2 2012 despite the economic downturn. The rising levels of Irish NFC debt reflect the large and increasing activities of multi-national corporations (MNCs) in Ireland in recent years.

While NFCs have significantly reduced borrowing from credit institutions through net loan repayments and loan write-downs, their borrowing from non-residents has increased substantially by 160 per cent between Q1 2008 and Q2 2012[4]. This latter trend largely reflects the substantial increase in MNCs in Ireland.

The research into equity withdrawals uses a unique data set to track changes in aggregate housing equity withdrawal between 1978 and 2012 and found that prior to the recent housing boom, aggregate equity injection was the norm for Irish households, mainly through the repayment of mortgage debt over time.

However, the property boom saw households move from aggregate equity injection to aggregate equity withdrawal. It is estimated that aggregate equity withdrawal reached a peak of €8 billion, or 10 per cent of disposable income, in 2006. This trend was driven by an increase in the number and value of top-up loans, an increase in the number and value of transactions during the boom and a relaxation of credit standards leading to lower deposits, longer loan terms and increased number of interest only loans.

The decline in the property market has led to a reversal of these factors with housing equity withdrawal collapsing and reducing to its lowest levels, driven mainly by the decline in the number and value of housing transactions.