One of the key drivers behind the better-than-expected recovery of the Irish financial sector has been the strong inflow of foreign risk capital, particularly from U.S. “vulture funds” as they are inaptly named. This healthy demand for Irish banking assets has allowed the PCAR and PLAR plans for the domestic banks, and the unwinding of NAMA, to progress successfully. Similarly healthy demand for the Irish assets of foreign banks, such as Irish loan portfolios sold by Ulster Bank, has also contributed indirectly to the Irish financial sector’s partial recovery.
There is a risk capital inflow when a foreign institution buys a troubled loan portfolio or property portfolio from an Irish bank, or from an Irish subsidiary of a foreign bank, or from Nama. These risk capital inflows are not intermediated through the Irish banks and do not appear on their balance sheets. Prof. Brian O’Kelly (DCU) and I were able to trace the 2000-2009 destabilizing inflow and sudden outflow of foreign credit into the Irish banking sector using the aggregate Irish banking sector balance sheet Table A4.1 published by the Irish Central Bank. Question: how can one measure this new source of risk capital inflows? It seems healthy and stabilizing rather than (like in 2000-2009) unhealthy and destabilizing, but it still deserves to be measured accurately. Is it necessary to list all the individual deals and add them up? Has some hardworking analyst done that already? Is it possible to create a quarterly or annual time series? Answers on a postcard (or better on a spreadsheet) are welcome!
Category: Banking Crisis
Òscar Jordà, Moritz Schularick, and Alan Taylor provide a little historical perspective on banks’ mortgage lending here.
The Irish Central Bank discussion paper on macro-prudential policy tools published yesterday seems to be a trial balloon for possible caps on Loan-to-Income (LTI) and Loan-to-Value (LTV) ratios for new residential property mortgages in Ireland. The general theory behind imposing these limits is laid out clearly in that document; there is no reason to repeat it here. I want to discuss some notable features of the Irish environment which strengthen the case for these caps (but do not make the decision easy).
From Barry Cannon and Mary Murphy, this article examines an important question I’m sure many people have wondered about–given the scale of the macroeconomic downturn, especially in 2008 and 2009, why were there not more mass protests in the Irish case?
The article, published in Irish Political Studies is free for the moment. The abstract is below, and it seems the authors conclude we just didn’t have enough of a crisis to warrant mass demonstrations.
Update: Thanks to Michael Hennigan here is a slide deck of the paper (.pdf)
Since 2008, Ireland has experienced a profound multi-faceted crisis, stemming from the collapse of the financial and property sectors. Despite enduring six years of neoliberal austerity measures in response to this situation, popular protest has been muted. Using Silva’s [(2009) Challenging Neoliberalism in Latin America (Cambridge and New York: Cambridge University Press)] framework of analysis of popular responses in Latin America to that region’s debt crisis of the 1980s and 1990s, this article seeks to investigate why this has been the case. We assess how the crisis is being framed among popular and civil society groups, and whether increased associational and collective power is developing. In doing so, we look at processes of intra-group cooperation, cross-group cooperation and framing and brokerage mechanisms. We then ask, where such processes exist, if they can lead to a comprehensive challenge to the neoliberal policies currently being implemented, as happened in much of Latin America. We conclude that the crisis has not yet reached sufficient depth or longevity to foster a more robust popular response, but propose that analysis of similar processes in Latin America can help us understand better why this is the case, not just in Ireland, but in other countries of Europe experiencing similar situations.
Economic Letter from the Central Bank here.