Category: Banking Crisis

Iceland! Iceland! Collapse! Collapse!

I’ve noted on a number of occasions that both Brian Lenihan and Brian Cowen are very fond of misleading analogies in which any proposals to nationalise the two main Irish banks are linked to events in Iceland. For example, I noted recently that in an interview with Business and Finance, Minister Lenihan linked Iceland’s banking system collapse to a decision to nationalise. Some of the Minister’s bigger fans on this site argued that he was merely citing the sequence of events rather than indicating any actual causation.

Well, on this evening’s edition of The Last Word on Today FM, Minister Lenihan was at it again (podcast here — the interview is during the first hour of the show). In addition, as is usually the case when Lenihan and Cowen discuss this issue, the principal point of the discussion appeared to be to link the Labour Party’s position on the banking crisis to that of the Icelandic government. About 53 minutes in, the Minister said:

We didn’t go off, again like Iceland, and nationalise the system overnight because that lead to a banking collapse in Iceland. That’s what some of the Labour Party people wanted us to do in the last year.

(Cue philosophical debates in the comments about the meaning of the word “because” or perhaps “lead”).

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IMF on NAMA and lending

As promised below, there is a story in today’s Irish Times that: “THE INTERNATIONAL Monetary Fund (IMF) told Minister for Finance Brian Lenihan last April that the National Asset Management Agency (Nama) would not lead to a significant increase in lending by the banks.” I dare say that this (NAMA not resulting in increased lending) does not come as a huge surprise to anyone??

Mortgage Modifications

As posted earlier, Brian Lucey has a timely article in today’s Irish Times on the government’s plan to perhaps have a plan to help people who can’t pay their mortgage.

Brian makes a number of important points on this issue (moral hazard, fairness of helping those who took out excessive mortgage, limited capacity of these banks to take further losses leaving it back on the hard-pressed Irish taxpayer, bankruptcy reform).  I was going to post a comment on it but the thread’s already really long and I wrote too many words, so I’ll put this on the front page instead.

I’d like to add to Brian’s points by discussing a stylized example in which a mortgage modification plan could work in the sense of easing the difficulties of current owners without costing the bank or taxpayer anything. Then I’ll note how the conditions of the stylized example won’t necessarily hold in many cases.

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New Responsibilities for NTMA

A busy day, with lots going on. But I think it’s worth flagging this story about new responsibilities for the NTMA.

The move is understood to be aimed at creating a sharper focus on the State’s financial interest in the banks, while leaving Mr Lenihan and the Government to address broader economic and social concerns.

It may also serve to alleviate European Commission concerns about political interference in day-to-day financial decisions being made by institutions receiving support from the State.

The main functions being delegated include discussions with the so-called covered institutions about their capital needs, as well as discussions in relation to “realignment or restructuring” within the banking sector.

The NTMA will also be delegated with the Minister’s powers in relation to the management of the State’s shareholdings in credit institutions, and some remaining functions under the State guarantee scheme.

It will also be delegated functions in relation to the giving of advice on banking matters generally, including issues relating to crisis prevention, management and resolution.

The distancing of the managing of the state’s control in banks that may soon be partly or fully nationalised is a good idea. The rest of the announcement I’m more puzzled by. I would have thought that the capital needs of the banks was an issue for the Central Bank to discuss with the covered institutions rather than the NTMA.

More generally, I can’t imagine there are too many countries that use their government bond issuance office for “advice on banking matters generally, including issues relating to crisis prevention, management and resolution” so I’m not sure why we are.

Constantin Gurdgiev discusses the annoucement here. He argues that there is a conflict of interest between obtaining the best return for NAMA and obtaining the best return on the government’s bank shares, presumably in relation to the pricing of the assets to be transferred.  Of course, if the government owns both the banks and NAMA, this conflict of interest would more of an ecumenical intra-NTMA matter.

Distressed Mortgages

Brian Lucey writes an op-ed on this topic in today’s Irish Times: you can read it here.