Category: Banking Crisis

AIB and BOI Oireachtas Submissions

Last week, I wrote a post about the appearance of AIB and Bank of Ireland executives before the Oireachtas Committee on Finance and the Public Service. A transcript of the appearance is available here. They refer to submissions that the banks gave to the committee but which are not on the Oireachtas website.

The Committee’s staff have kindly made these submissions available to me on request. Here is the AIB submission and here is the Bank of Ireland submission. The AIB submission is particularly interesting because of its focus on funding costs and margins. Somewhat depressingly it states that “Our pricing guidelines could lead to a customer being charged 4% to 5% over Euribor.”

TARP Congressional Oversight Panel Report

When it passed the TARP Bill authorising the Treasury Department to spend €700 billion to stabilise the US financial sector, Congress set up a Congressional Oversight Panel (COP) to oversee how the TARP money was spent. The COP is chaired by Elizabeth Warren, a law professsor from Harvard and has held regular hearings and issued monthly reports. This month’s report is “Taking Stock: What Has The Troubled Asset Relief Program Achieved?”

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UK Pre-Budget Report

Proof we’re not alone on the fiscal crisis front: The UK Pre-Budget report. The UK government plans to reduce its deficit from 12.6 percent this year to 12 percent next year and then gradually to 4.4 percent in 2014-15. One highlight of the statement: An immediate 50% supertax on bankers’ bonuses paid between now and April. Bankers, apparently, are furious and were seen crying into their Dom Perignon all over the City of London.

Who Blinks First? Ireland, Greece, the ECB, and the Bank Guarantee

The rules of the game have changed for Ireland.  Should Ireland respond to this new risky-game environment by selling off some or all of its domestic banks to large foreign bank holding companies?  I believe that it should.  We can keep the names on the high street bank offices, but lose the liability guarantee.

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Moral hazard, time inconsistency, and banking in the long run

Will Hutton has an op-ed piece today in the Observer which includes some striking historical charts. These are extracted by a very interesting article by Andy Haldane, Executive Director, Financial Stability at the Bank of England. Haldane’s article is well worth a read, as a simple conceptualization of the long run problems facing financial regulators.

Money quote:

Haldane describes “the latest incarnation of efforts by the banking system to boost shareholder returns and, whether by accident or design, game the state. For the authorities, [these pose] a dilemma. Ex-ante, they may well say “never again”. But the ex-post costs of crisis mean such a statement lacks credibility. Knowing this, the rational response by market participants is to double their bets. This adds to the cost of future crises. And the larger these costs, the lower the credibility of “never again” announcements. This is a doom loop.”