Archive for the ‘Banking Crisis’ Category

Ending the Sean FitzPatrick Myth

By Gregory Connor

Thursday, April 17th, 2014

16th April 2014: Sean FitzPatrick has been found not guilty of all charges relating to the Maple 10 transaction. First the judge (for some of the charges) and then the jury (for the remaining charges) examined the evidence carefully, and declared him not guilty. The Maple 10 scheme was truly outrageous, but there is no reason to second-guess the verdicts as given.

From a broader perspective, these not-guilty verdicts might encourage a deeper understanding and better public response to the Irish credit bubble and financial collapse. It is a myth that Sean FitzPatrick caused the Irish financial collapse. Sean FitzPatrick was a major character in the Irish credit bubble, but not a fundamental cause. The collapse is better explained by the extremely “light-touch” financial regulatory system which was deliberately chosen by the democratically elected government of the Irish state, and to a lesser degree by the deeply-flawed Euro currency system chosen by member states. Over the short term, the Irish public benefitted handsomely from both the flawed Euro currency system and the very flawed light-touch Irish financial regulatory system. The Irish electorate was keenly enthusiastic for both.

The Maple Ten scheme was an outrageous transaction whose sole purpose was to unwind another outrageous transaction – the accumulation of a disguised 29% ownership of Anglo Irish Bank by Sean Quinn using contracts for difference (CFD). CFD’s are only legal in some countries, are a naturally toxic trading vehicle, and evade corporate governance rules by disguising true share ownership. Ireland during the boom was a world leader in the use of CFD’s, and Sean Quinn’s disguised 29% ownership position using CFD’s was particularly outrageous.  The Irish financial regulator was simultaneously monitoring (or not monitoring) two very large and very dubious financial transactions in a relatively tiny domestic financial system. To lose track of one large, dubious financial scandal may be regarded as a misfortune, to lose track of two looks like carelessness.

During the bubble period macro-prudential risk regulation by the Irish Central Bank was also (with hindsight) very poor.

The fundamental causes of the Irish financial collapse were two flawed systems – a flawed Euro monetary system and a very flawed Irish financial regulatory system. Both of these systems were built up in broad view and with enthusiastic public support.

- - -  - -  - - - -  - - - - - - - - -

See Corbet and Twomey for a technical treatment and empirical study of CFDs, with a focus on Irish CFDs.

Doublespeak of the day

By Kevin O’Rourke

Wednesday, April 9th, 2014

According to the Irish Independent, Minister Noonan was worrying in public last night about the shortage of family homes in the Dublin area. But he also apparently said:

“We need to get property prices up another bit.”

To which the only possible response is: “why”?

If you are stuck in a malfunctioning currency union and can’t devalue, then don’t you want to get all costs down as much as possible, especially if they are going to feed into wage demands? Why interfere with the market in this particular case?

Raking Over Old Coals

By Seamus Coffey

Thursday, March 20th, 2014

A memo prepared in November 2008 by Merrill Lynch in advising the then government on the developing banking crisis has been released following an FOI request from Sinn Féin.  The 45-page memo is here.

Some government statements issued around time include:

  • 30.11.08: Announcement in relation to Covered Institutions
  • 14.12.08: Statement by the Government on the Recapitalisation of Credit Institutions
  • 21.12.08: Government Announcement on Recapitalisation
  • 15.01.09: Statement on Nationalisation of Anglo Irish Bank

It is an interesting read but has anything been unearthed aside from further evidence that the scale of the banking bust was massively underestimated?

Q4 2013 Mortgage Arrears Statistics

By Seamus Coffey

Tuesday, March 4th, 2014

The Central Bank have released the Q4 2013 update of their mortgage arrears statistics

For Primary Dwelling Houses (PDHs), 12.6 per cent of accounts are in arrears of 90 days or more.  This compares to 11.4 per cent of accounts in similar arrears in the unaudited monthly data for December published by the Department of Finance

The Department of Finance figures cover the six banks operating under the Mortgage Arrears Resolution Targets (MART) process.  These banks (ACC, AIB, BOI, KBC, PTSB, ULSTER) provide 90 per cent of mortgage lending in Ireland so it is clear that the remaining 10 per cent of mortgages (from the former BOSI and INBS as well as the various sub-prime lenders) have a far higher arrears rate – somewhere around 23.5 per cent.  The 90-day arrears rates for the INBS and subprime mortgages are greater than 50 per cent.

In today’s Central Bank statistics we see the total number of PDH accounts in arrears continue to fall and for the first time there was a decline in the number of accounts 90 days or more in arrears. 

However, the situation of those in existing arrears continues to deteriorate with yet another significant increase in the number of accounts now 720 days or more in arrears (31,834 to 33,589). 

On average the accounts greater than 720 days in arrears are just under €42,000 in arrears.  Across the statistics there is an average of roughly 1.25 accounts per household.

The outstanding balance on mortgages in arrears fell from  €25.6 billion to €24.4 billion of which €18.2 billion are in arrears of 90 days or more.  The total amount of arrears rose from €2.17 billion to €2.24 billion.

The total amount of PDH mortgage debt continues to fall and is now at €107.4 billion, compared to €118.6 billion when the series began in September 2009.  However, it should be noted that the release mentions “asset sales” that took place over the quarter but it is not clear what impact these have on the figures.  The sales refer to mortgages that were sold by one of the reporting institutions, and are therefore no longer included in the statistics.

At the of December there were 84,053 restructured PDH accounts and 79.3 per cent were deemed to be meeting the conditions of the restructure.  There is a new table providing these rates by each type of restructure.

Reduced payment less than interest only (4,264) and arrears capitalisation (18,516 accounts) are the worst performing restructures for PDH accounts.  There were only 14 accounts granted a permanent interest rate reduction.

As expected the number of split mortgages continues to grow rapidly.  It increased from 1,154 in Q3 to 3,268 in Q4 and, with 96.3 per cent compliance, it is the best performing restructure for PDHs.  This is likely linked to the incentives built in to the restructure.  There are likely to be many more split mortgages coming through as there are 9,722 restructured accounts classed as “Other” most of which are “accounts that have been offered a long-term solution, pending the completion of six months of successful payment.”

There were 63 forced repossession in the quarter and 105 voluntary surrenders.

Court proceedings were initiated in 1,491 cases.  Up to Q2 2013 the average number of proceedings issued per quarter was around 250.  This increased massively in the second half of 2013.  During Q4, 258 court proceedings were concluded and 82 court orders for repossession were granted.  Of the 176 concluded by other means it is  probable that many of these see the borrower and lender enter a new arrangement through a restructuring of the original loan agreement with others ending by way of voluntary surrender/abandonment.

Data on the Buy-to-Let sector are also included in both releases.

‘Hardball’ v ‘Equity Sale’

By Seamus Coffey

Tuesday, January 28th, 2014

The Irish Times today features two contrasting strategies for dealing with the debt legacy created by the Irish bank bailout.

An interview RTE’s Sean Whelan did with Willem Buiter is available here.

Irish Economic Policy Conference 2014: Economic Policy after the Bailout

By Stephen Kinsella

Tuesday, January 14th, 2014

Organised jointly by the ESRI, Dublin Economic Workshop, UL, and UCD’s Geary Institute, this year’s policy conference (see previous years here and here) will be on the theme of economic policy after the bailout. This conference brings policy makers, politicians, civil servants and academics together to address this question of national importance. The venue will be the Institute of Bankers in the IFSC. (Click here for a map).


Date: 31st January 2013

Venue: Institute of Bankers, IFSC

Programme

9:15 - 10:45: Plenary: The Impact of the Crisis on Industrial Relations

Chair: Aedín Doris (NUI Maynooth)

  • Kieran Mulvey (Labour Relations Commission) Prospects for Pay and Industrial Relations in the Irish Economy
  • Shay Cody (IMPACT Trade Union) “The impact of the crisis on industrial relations – a public service focus”
  • Michelle O’Sullivan/Tom Turner (University of Limerick) “The Crisis and Implications for Precarious Employment’”

10.45-11.15: Coffee Break

11:15 – 12:45: 2A. Migration and the Labour Market

Chair: Philip O’Connell (UCD Geary Institute)

  • Piaras MacÉinrí (UCC) ‘Beyond the choice v constraint debate: some key findings from a recent representative survey on emigration’
  • Peter Muhlau (TCD) “Social ties and the labour market integration of Polish migrants in Ireland and Germany”
  • Alan Barrett (ESRI & TCD) and Irene Mosca (TCD) “The impact of an adult child’s emigration on the mental health of an older parent”

2B. Economics: Teaching and Practice

Chair: Ronan Gallagher (Dept of Public Expenditure and Reform)

  • Brian Lucey (TCD): “Finance Education Before and After the Crash”
  • Liam Delaney (Stirling): “Graduate Economics Education”
  • Jeffrey Egan (McGraw-Hill Education) “The commercial interest in Third Level Education”

12:45 – 1:45: Lunch Break

1:45 – 3:15: 3A. Health and Recovery

Chair: Alex White, TD, Minister of State

  • David Madden (UCD) “Health and Wealth on the Roller-Coaster: Ireland 2003-2011”
  • Charles Normand TCD) and Anne Nolan (TCD & ESRI) “The impact of the economic crisis on health and the health system in Ireland”
  • Paul Gorecki (ESRI) ‘Pricing Pharmaceuticals: Has Public Policy Delivered?”

3B. Fiscal Policy

Chair: Stephen Donnelly TD

  • Seamus Coffey (UCC) “The continuing constraints on Irish fiscal policy”
  • Diarmuid Smyth (IFAC) ‘IFAC: Formative years and the future’
  • Rory O’Farrell, (NERI) “Supplying solutions in demanding times: the effects of various fiscal measures”

3:15 – 3:30: Coffee Break

3:30 – 5:00: Plenary: Debt, Default and Banking System Design

Chair: Fiona Muldoon (Central Bank of Ireland)

  • Gregory Connor (NUI Maynooth) “An Economist’s Perspective on the Quality of Irish Bank Assets”
  • Kieran McQuinn and Yvonne McCarthy (Central Bank of Ireland) “Credit conditions in a boom and bust property market”
  • Colm McCarthy “Designing a Banking System for Economic Recovery”
  • Ronan Lyons (TCD) “Household expectations and the housing market: from bust to boom???”

This conference receives no funding, so we have to charge to cover expenses like room hire, tea and coffee. The registration fee is €20, but free for students. Please click here or on the link below to pay the fee, then register by attaching your payment confirmation to an e-mail with your name and affiliation to emma.barron@ucd.ie. [Block bookings can be made by purchasing the required number of registrations and then sending the list of names to emma.barron@ucd.ie]

Please click here to pay the registration fee.

BOI downgraded by Moody’s

By Seamus Coffey

Wednesday, December 18th, 2013

Yesterday Moody’s downgraded BOI, lowering deposits to Ba2 and senior unsecured debt to Ba3, with negative outlook.  These are the same speculative grades it applies to AIB.  The agency has PTSB lower with a B1 rating for deposits and B3 for unsecured debt.

The Moody’s report on BOI is here and gives some useful insights into the reasoning applied by Moody’s.  The rating on subordinated debt in BOI was raised from C to B2 with preference stock raised to Caa2 also from C. Senior bonds covered by the ELG remain at Ba1 with stable outlook.

This is a chart of Moody’s recent deposit ratings for BOI.

EBA Transparency Exercise 2013

By Seamus Coffey

Tuesday, December 17th, 2013

A useful summary report is here.

Detailed results on the Irish banks involved are also available:

All the material published is available here.

Balance Sheet Assessments

By Seamus Coffey

Monday, December 2nd, 2013

AIB and Bank of Ireland have released statements (one somewhat shorter than the other) following the results of the balance sheet assessments carried out by the Central Bank.

UPDATE: The statement released from PTSB at 11am also reflects a paucity of information.

Collins -v- The Minister for Finance & Ors

By Seamus Coffey

Tuesday, November 26th, 2013

Judgment here.

UPDATE. The following is probably also relevant here:

Bond Repayments: Motion [Private Members]

    “That Dáil Éireann:

      calls on the Government:

    — to immediately lobby the European Central Bank for a one-off exemption from the rules of monetary financing, to allow the Central Bank of Ireland to destroy the €25 billion in sovereign bonds issued in February of this year, in lieu of the remaining promissory notes, plus the €3.06 billion bond also being held by the Central Bank of Ireland in payment for the 2012 promissory note; and

    — to cease any and all interest payments currently being made on those bonds.”

    The first part of the debate on this motion is available here.
    UPDATE 2: The final part of the debate on the above motion is now available here.

The Future of Banking in Europe Conference

By Alan Ahearne

Thursday, November 21st, 2013

The Institute of International and European Affairs will host a conference in the Convention Centre Dublin on Monday, 2 December that will feature a series of keynote addresses and panel discussions to consider the rapidly changing banking environment in the context of the proposals for a banking union in Europe. The implications of these developments, including what they mean for the future of the euro, the management of financial crises in the Eurozone and the likely impact on businesses and individual consumers, will also be addressed. Additional details can be found here.

Bank Issues

By Seamus Coffey

Wednesday, November 20th, 2013

Two of the “Irish-Headquartered Group” of banks raised funds from capital markets today. 

AIB issued €500 million through a senior, unsecured (and unguaranteed) bond.  Reuters report here.

PTSB also raised €500 million but from a mortgage-covered bond.  Press release here.

The Tracker Dilemma

By Seamus Coffey

Tuesday, November 19th, 2013

Alan Ahearne writes on this issue here.

Fishamble’s “Guaranteed!” by Colin Murphy on national tour

By Aidan Kane

Wednesday, November 6th, 2013

via Gavin Kostick in comments, earlier

Fishamble’s production of ‘Guaranteed!’ by Colin Murphy is back on national tour, starting at Kilkenomics this Friday. First panel discussion includes Bill Black and Dan Ariely.

http://fishamble.com/guaranteed

J.P. Morgan’s Legal Troubles and Eurozone Banking Sector Consolidation

By Gregory Connor

Friday, October 25th, 2013

The financial architecture of the Eurozone is still a mess. One possible improvement might be a wave of cross-border bank takeovers and mergers. Such a change might make the Eurozone less fragile since country-specific economic shocks would not have a two-way negative-feedback through the balance sheet of country-specific banks. This change would also kill the potential for country-specific deposit runs. The bank regulatory authorities in the U.S.A. (FDIC and Federal Reserve) often arrange mergers and takeovers of troubled banks to snuff out liquidity/solvency crises at individual banks and/or dampen regional shocks. J.P. Morgan was encouraged to take over Bear Stearns and Washington Mutual by the regulators for exactly these reasons. Now, quite appropriately, J.P. Morgan is responsible for the “legacy liability” issues of these two absorbed banks, and it looks like the final bill for J.P. Morgan could be over $10 billion. J.P. Morgan is the legal successor and a change of ownership does not eliminate the liability, even if (as in this case) the regulator gave you a Best Boy in Class ribbon when you agreed to the takeovers. The J.P. Morgan case is in a foreign jurisdiction, but nonetheless this case will have knock-on effects for the Eurozone.  The J.P. Morgan case makes it less likely that there will be any takeovers of troubled or formerly-troubled Irish banks.

Private debt, public debt, and crises

By Kevin O’Rourke

Wednesday, October 23rd, 2013

Òscar Jordà, Moritz Schularick, Alan Taylor have a new piece on the issue, available here.

House prices: bubbles versus booms

By Ronan Lyons

Tuesday, October 1st, 2013

The end of one quarter and the start of another sees the usual slew of economic reports and the start of Q4 is no exception. Today sees the launch of the Q3 Daft.ie Report. In line with other reports in the last week or so, and indeed with the last few Daft.ie Reports, there is evidence of strong price rises in certain Dublin segments. What is new this quarter is the clarity of the divide between Dublin and elsewhere: all six Dublin regions analysed show year-on-year gains in asking prices (from 1.4% in North County Dublin to 12.7% in South County Dublin), while every other region analysed (29 in total) continues to show year-on-year falls (from 3.1% in Galway city to 19.5% in Laois).

The substantial increases in South Dublin over the last 12 months have led to talk of “yet another bubble” emerging, with internet forums awash with sentiment such as “Not again!” and “Will we never learn?”. To me, this is largely misplaced, mistaking a house price boom for a house price bubble. Let me explain.

Firstly, I should state that, unlike “recession” which is taken to mean two consecutive quarters of negative growth, there is no agreement among economists on what exactly constitutes a bubble, in house prices or in other assets, but the general rule is that prices have to detach from “fundamentals”. For example, the Congressional Budget Office defines an asset bubble as an economic development where the price of an asset class “rises to a level that appears to be unsustainable and well above the assets’ value as determined by economic fundamentals”. Charles Kindleberger wrote the book on bubbles and his take on it is that almost always credit is at the heart of bubbles: it’s hard for prices to detach from fundamentals if people only have their current income to squander. If you give them access to their future income also, through credit, that’s when prices can really detach.

(more…)

Strategic Irish Mortgage Arrears: The Smoking Gun

By Gregory Connor

Thursday, September 12th, 2013

My colleague Tom Flavin and I are preparing a paper for the Dublin Economic Workshop on the financial characteristics of Irish Mortgage defaults. The analysis relies on a donation of anonymized data on mortgage arrears from Permanent TSB and we are grateful to them for their assistance. Tom will give a fuller account of our data analysis at the conference; this blog entry highlights some of the strong evidence for a very substantial proportion of strategic arrears in Irish mortgage arrears. (more…)

Restoring Confidence in the Financial System

By Gregory Connor

Saturday, August 3rd, 2013

Fiona Muldoon, Director of Credit Institutions and Insurance Supervision at the Irish Central Bank, gave a speech yesterday in Glenties at the MacGill summer school (h/t John Gallaher). The topic of the speech was “Restoring Confidence in the Irish Financial System.” Ms Muldoon gave a fairly upbeat assessment of progress. I am less sanguine. The problem is not lack of international confidence in Irish banks and businesses, but rather lack of international confidence in Irish financial regulation. It is still not clear if the Irish Central Bank has the backbone for the tough tasks it faces in the current environment.

It is important to remember that the weak regulatory stance of the Irish Central Bank during the credit bubble period was one of the chief causes of the Irish economic crisis. The Irish Central Bank’s soft and timid approach, and its willingness to be swayed by political and business interests, was a major cause of Ireland’s economic disaster (for evidence, see my paper with Brian O’Kelly). Has the Irish Central Bank sufficiently altered its approach?

The Irish Central Bank has reformed enough so that if the challenges of 2002-2008 ever reoccur, it will be ready for them. This new resolve to block credit bubbles is not likely to be tested for many decades. The Irish Central Bank needs to have the strength and fortitude to deal with the very different challenges of 2013.

The Irish Central Bank showed no leadership during the fiasco of the 2009 Land Reform Act/Dunne Judgement. The previous government (perhaps deliberately) slashed a gaping hole in Irish financial contract law when it passed the flawed 2009 Land Reform Act. The flaw was pointed out by Justice Dunne, and the judiciary reasonably expected that such an egregious flaw (called a “lacuna” in legal parlance) would be fixed by amending legislation. However the legal flaw was politically convenient since enforcing mortgage contracts would have been politically painful at the time. Ignoring the Dunne Judgement and leaving the flaw in place was very poor practice in terms of restoring international confidence in the Irish financial system, but it was politically convenient for a domestic audience. The government did nothing at all about this legal flaw, despite the obvious impact on Ireland’s international reputation.

It took outside interference by the Troika to get this legal flaw fixed. The Troika repeatedly noted the unacceptable situation in their quarterly reviews, and when government action was still not taken the Troika demanded that the Irish government act by an imposed deadline or face a cut-off in national debt funding. Throughout this long, confidence-draining saga, the Irish Central Bank stood meekly by and said nothing. A stronger-willed central bank (US, UK, Germany, others) would have been screaming from the rooftops about the need to fix such a gaping hole in the country’s financial contracting law.  It is not to the credit of the Irish Central Bank that we needed Troika intervention to get this problem acknowledged and fixed.

The Central Bank’s response, or lack thereof, to the explosive growth in mortgage arrears is another case where its stance was timid. Even by late 2011 it was obvious to hard-headed observers that some substantial fraction of the mortgage arrears explosion could be traced to strategic behaviour by households. Mentioning strategic default is offensive to many people since it means acknowledging that some Irish people are acting dishonestly in their own self-interest against the interests of society. A few people were brave enough to mention the obvious (take a bow, Karl Deeter!) but none at the Irish Central Bank. Up until early 2013, the Irish Central Bank effectively had a ban on any mention of strategic default by any central bank spokesperson. This gave rise to some stilted presentations, where Central Bank senior spokespeople railed about the explosion in mortgage arrears without any mention of one of the key causal factors. This omerta was finally broken by Patrick Honohan in early 2013. That was too late in the process to be an international confidence-booster. A strong imperative by the Irish Central Bank not to cause anyone any offence is not a good foundation for building international confidence in Irish financial regulation.

On the positive side, the Irish Central Bank’s actions against Quinn Insurance were tough and bold. So the bottom line is that in terms of restoring confidence the Irish Central Bank has a mixed record over recent years.

Irish Times on Mortgage Arrears Deals

By Gregory Connor

Tuesday, July 16th, 2013

An interesting article on property debt restructuring deals by Mark Hilliard in today’s Irish Times, “Secret Deals on Mortgage Arrears Raise Concerns.” For many of us it will bring back our graduate school days studying Stiglitz, Rothschild, Ackerlof, Spence et alia on information revelation and efficient contracts. The laudable goal of the Irish mortgage debt arrears policy is to ensure that almost all householders who cannot pay their mortgages can keep their family homes. The difficulty is that it is virtually impossible to distinguish can’t-pays from won’t-pays except at untenable cost and personal privacy intrusion. So the unwritten “policy” is to restrict the flow of information to consumers regarding restructuring terms and conditions. This is intended to limit the flow of potential won’t –pays into the system. In the article, Noeline Blackwell of FLAC is quoted lamenting the lack of a clear detailed list available to consumers in terms of debt restructuring options. She is correct, but this lack of information is not a bug, it is a feature of the evolving Irish system.

John Lanchester on banks in the LRB

By Kevin O’Rourke

Tuesday, July 2nd, 2013

There is nothing new in this, but the number of shady episodes that Lanchester reminds us of, and the quality of his writing, makes it well worth a read.

Brendan and Dermot Walsh on health and austerity

By Cormac Ó Gráda

Sunday, June 30th, 2013

Dermot and Brendan Walsh have just published a provocative comment in the British Medical Journal on the link between health and austerity  [http://www.bmj.com/content/346/bmj.f4140/rr/651853].

Momentary relief from the deliberations on Anglo!

The comment reads:

Ireland is - after Greece - the country where the post 2008 structural adjustment programme, aka austerity, has been proportionately most severe. Yet there are few indications that this has had a significant adverse effect on basis health indicators.

The crude death rate in 2012 was 6.3 per 1,000 compared with 6.4 in pre-austerity 2007. The suicide rate in 2012 was 12.8 per 100, 000 in 2012 compared with 13.2 in 2007. Admission rates for depressive disorders fell to 117 per 100, 000 in 2012 from 138 in 2007. The percentage distribution of self-assessed health status did not change between 2007 and 2010 (the latest available year).

Overall there is a striking lack of evidence that the major austerity programme implementd since 2007, and the concomitant trebling of the inemployment rate, has had a significant deleterious effect on the health of the Irish population. This evidence needs to be given due weight in international assessments of the impact of economic policies on public health.

ECB Policy Responsibilities and Banking System Fragmentation

By Gregory Connor

Wednesday, May 1st, 2013

The Eurozone banking system is not working properly due to fragmentation between core and peripheral banking systems. In a recent speech, the president of the ECB, Mario Draghi, has acknowledged this, but argues that fixing this problem is someone else’s responsibility. The ECB has the tools to address this crucial flaw in the Eurozone system, and over the medium term horizon there is no other Eurozone institution that can. The ECB should use the tools available to fix this market fragmentation, in particular, the ECB should engage in aggressive, long-term asset refinancing on sufficiently generous terms to encourage bank participation. (more…)

Whatever it takes to save the euro?

By Kevin O’Rourke

Saturday, March 23rd, 2013

This interview with Athanasios Orphanides will ring a few bells in Dublin. I remember in the autumn of 2010, when the ECB in a similar fashion threatened to pull the plug on the Irish banking system, thinking that this was not a credible threat, since such action would de facto mean expelling Ireland from the Eurozone. Would an unelected bunch of central bankers really be willing to do something so political?

I can understand why Irish policymakers were not willing to test this logic at the time, even though I was very angry with them for giving in to ECB pressure not to burn the Irish banking system’s creditors, and still think they shouldn’t have done so.

One thing seems certain however. The ECB cannot have it both ways. It cannot simultaneously threaten to expel a member state from the Eurozone, and also expect us to believe that it will do “whatever it takes” to save the euro.

What investors (and, to be honest, I) have forgotten is that Draghi qualified his pledge: the ECB would do whatever it takes “within its mandate”. It isn’t clear that investors will continue to believe that “it will be enough”.

Nicolas Véron on Cyprus

By Kevin O’Rourke

Friday, March 22nd, 2013

This piece by Nicolas Véron is well worth a read, even though it was posted yesterday and the situation is fast-moving.

Bank guarantees: how to make matters even worse

By Kevin O’Rourke

Wednesday, March 20th, 2013

I can’t quite believe that the EC has said this, but they apparently have. Unbelievable. Its obvious implication is that bank runs in troubled countries, if they ever happen, now risk being nation-wide, rather than limited to failing banks. Hat tip Eurointelligence, who call the statement hugely damaging, and Gavin Kostick in the comments.

Gary O’Callaghan on conveniently flexible moralising

By Kevin O’Rourke

Tuesday, March 19th, 2013

I thought I would hoist this comment by Gary O’Callaghan onto the front page:

Karl observes in his article that Ireland’s citizens must be feeling foolish today: “After being reassured time and again that all depositors and senior bond creditors of … Anglo Irish Bank must be saved in the name of European financial stability, they find out that Europe’s leaders now believe hair-cutting depositors is fine and fair and doesn’t cause contagion.”

In a related dynamic, there appears to have been a subtle turn by many commentators (including on this site) from the “serves them right” school of economics. That School, most righteously established by LBS, argued that Irish taxpayers should carry the can for bank losses because they “should have” sought better supervision on banks. Many from the same School now appear to argue that depositors (creditors) “should have” been more careful in the Cypriot case and deserve to suffer for their stupidity. Serves ‘em right!

Of course, there is a practical limit on the burden that Cypriot taxpayers can bear in this case but such considerations never bothered the LBS School before. Do they now grant that Irish taxpayers were not fully “to blame” (and that burden-sharing from bondholders was warranted)?

Would they now agree with Karl that “the moral grounds for a retrospective compensation deal for Ireland have increased substantially with this new development?”

The problem with theorizing from morals, of course, is that the ground can shift (and come back to meet you).

I am tempted to add that if we ask “cui bono”, there may be less inconsistency here than at first glance meets the eye.

Solvent countries are all alike; every insolvent country is insolvent in its own way

By Kevin O’Rourke

Monday, March 18th, 2013

You leave the computer switched off during the holiday weekend, and look what the Eurozone does while you’re away! I guess we don’t know yet what the final outcome is going to be in Cyprus, and I fully share Sharon Bowles’ hopes that we haven’t seen the final word yet.

But if small depositors are going to take a hit, then, as a reminder of what we will have lost, here is a handy set of links to various EU documents and regulations regarding banking deposits. This citizen’s summary which reflects the media reports of the time helps explain why people have persisted in leaving their money in peripheral European banks for so long. It seems mad to tear this guarantee up on the grounds that Cyprus is sui generis, since as Tolstoy (almost) said…

Update: Tuesday morning, and we still don’t know what is going to happen; maybe the guarantee for savings of less than €100,000 will be honoured. But I fear that Karl and the many other commentators weighing in on the issue this morning are right, and that the long run reputation of the EU’s claim to guarantee such deposits will suffer a big hit as a result of this debacle, no matter what ultimately happens.

Habemus Mortgage Arrears Plan

By Gregory Connor

Wednesday, March 13th, 2013

Today the Irish government and Central Bank together announced a new set of plans to tackle the mortgage arrears crisis. The new plan reverses two policy decisions from the recent past that are now acknowledged to be flawed: the 2009 Land Conveyancing Act, and the Financial Regulator’s 2011 Code of Conduct on Mortgage Arrears. The plan also imposes ambitious targets on all Irish domestic banks, first, to offer each mortgage holder in arrears a specific proposal for resolving their arrears problem, and second (during 2014) to ensure that a majority of these individual plans are implemented or suitably modified.

The targets seem fairly aggressive, with over 55,000 individual arrears resolution plans to be offered by December of this year. It is not clear when the new process can begin since the legislative changes to the 2009 Land Conveyancing Act may not be ready for several months (today they were promised to be completed by the summer recess of the Dail).

Key documents:

Irish Central Bank press announcement:

Mortgage arrears resolution targets:

Consultation on changes to the Code of Conduct on Mortgage Arrears:

The Pro-Note Deal: Monday Analysis

By Philip Lane

Monday, February 11th, 2013

Wolfgang Munchau (crediting Karl Whelan) here.

Donal Donovan here.

John McManus here.