Ross Levine advocates the creation of an independent agency (‘The Sentinel’) to monitor the conduct of financial regulation in this paper.
The Live Register figures for March are out.
The standardised unemployment rate in March was 14.7%, unchanged from February. This compares with the latest seasonally adjusted unemployment rate of 14.7% from the Quarterly National Household Survey in the fourth quarter of 2010, and an annual average of 13.6% for 2010.
By way of comparison, the baseline forecast for 2011 unemployment in the Central Bank’s PCAR macroeconomic scenario is 13.4%. In the adverse scenario, this rises to 14.9%. We are almost there, and it is only March.
At least the Central Bank scenarios got the 2010 unemployment numbers right! This contrasts with their 2010 GDP numbers, as Dan O’Brien pointed out earlier in the week.
(And I admit that I am baffled by an adverse house price scenario that is not robust to the ‘What if Morgan Kelly is right?’ objection.)
There has been a lot of focus in the past few days on stories based on leaks of Thursday’s stress tests results. Perhaps more important, however, is the question of what the plans are for the €150 billion in central bank funding that the Irish banks are currently receiving.
Two interest stories here and here suggest there is lot to be negotiated on this issue. While less visible than the question of the interest rate on Ireland’s EU loans to the sovereign, the questions of how long the Irish banks will have to pay back these loans, and at what interest rate, are perhaps more important.
The FT’s Lex renews its call for bondholder burden sharing in today’s column (see here). I know many readers are fans of the FT’s stance on dealing with the Irish banks. A consistent feature of this stance, however, has been to throw out strong recommendations for burden sharing, but with little discussion of the practical challenges involved. Today, the suggestion is to put losses partly on unguaranteed but secured senior bondholders; and, true to form, there is no discussion of the practicalities of imposing losses on the subset of banks that will be well-capitalised after the stress tests. I know space is tight, but I think we have reason to expect better from the FT. The closing couple of paragraphs:
Some €21bn of that total consists of senior bonds issued and guaranteed since January 2010, and, therefore, probably untouchable. Another €7bn is subordinated debt on which holders are already taking a haircut. The rest is senior bonds, of which €16.4bn are unguaranteed and unsecured, and €19bn are unguaranteed but are secured on bank assets.
It is here that burden sharing should be concentrated, and the government needs to start the bidding as high as possible. Only if both classes of unguaranteed bonds, amounting to 23 per cent of GDP, are included can the resulting savings make a real difference to Ireland’s otherwise ballooning debt/GDP ratio, which could hit 120 per cent without burden sharing. Thursday’s stress test results on Irish banks will indicate how much extra capital they need. The taxpayer’s contribution must be as little as possible. Irish senior bank bonds trade at prices that discount some burden sharing. The case for it is compelling.
Arthur Beesley provides a helpful report on the government’s emerging four-part support request for the banking system (see article here; related front-page article here). I think the plan is based on a broadly correct diagnosis of the challenge of restoring the creditworthiness of both the banks and the State; it is also realistic in not demanding policies that involve large expected net transfers.