Category: Banking Crisis

ECB and Nationalised Banks, Again

My former colleague, Mike Casey, wrote the following in this article in today’s Irish Times:

When Nama is up and running, the banks will be able to borrow far greater amounts from the ECB. Some of this money may be lent to the private sector (one hopes), but it is likely that substantial funds will be made available to the Government to finance the budget deficit.

This may be the main reason why the Irish banks were not nationalised. If they had been nationalised this transfer of funds could not occur, since the ECB cannot lend directly to government.

I’m afraid I have to disagree with this argument for why Irish banks cannot be nationalised.

Continue reading “ECB and Nationalised Banks, Again”

Peter Mathews Talk Tonight

I linked a few weeks ago to a video of Peter Mathews discussing NAMA. Peter is a former banker with ICC and currently an independent banking and property consultant (here‘s a link to a full profile). He is giving a public talk tonight at the RDS Concert Hall at 8PM titled “NAMA Will Lose €12 billion: There’s a Sounder Alternative.”  I have spoken with Peter on a number of occasions and have found him to be highly informative on the subject of Irish banking so I recommend attending his talk if you can.

NAMA SPV Plan Versus NAMA Draft Business Plan?

Last week NAMA published a draft business plan. It contained a detailed description of how NAMA was supposed to operate. It told us, for instance, that the loans of the largest 100 to 150 borrowers “will be managed directly by NAMA.” (page 28) and explained a timeline for how NAMA intended to recover funds from the loans it was acquiring.

NAMA’s draft business plan did not mention a Special Purpose Vehicle.

Continue reading “NAMA SPV Plan Versus NAMA Draft Business Plan?”

Pre Funding Future Bank Crises

Eurointelligence today carries an interesting news report

Sweden proposes stability tax

The Swedish finance minister Anders Borgh has written to his EU colleagues in favour a stability tax levied on banks who proceeds could be used for future bail-outs. Sweden has already imposed a tax of 0.0036% of bank liabilities. FT Deutschland points out that this is not a Tobin tax on bank transactions. Sweden has introduced this tax this year, and expects the revenue from this tax to grow to 2.5% of GDP in fifteen years.

Such a ‘rainy day’ fund would have been helpful during the current crisis (although there is a classic moral hazard counter-argument).  Indeed, I had previously suggested the establishment of such a fund as part of Ireland’s preparations for EMU membership, given the fiscal costs that accrue in the event of banking crisis. My contribution can be downloaded here.  The difference is that the Swedish fund is financed by a tax on the banking sector, whereas I had in mind a fund to be accumulated from general tax revenues.

“Like two drunks leaning against each other to stay upright . . .”

That’s how Buttonwood describes the relationship between the banks and government in Britain and America in his/her latest column in The Economist.
The piece goes on to predict:

. . . this leads to an odd symbiotic relationship in which governments have stepped in to rescue the banks, only for the banks in turn to finance the government. In the long run the danger is that this cosy relationship means lending is diverted away from productive private-sector projects and into government spending. Economic growth will be slower as a result.

It seems very relevant to the debate on the Irish banking crisis.