Category: Banking Crisis

Negative Net Lending to Firms and Households

Last month, Philip noted the new Central Bank release on Money and Banking. Philip pointed out the new presentation of the data in a more useful format, with figures presented for what is essentially an IFSC and non-IFSC breakdown.  I had meant at the time to chip in to note some other useful improvements but didn’t get around to it.

So, with this month’s release now available (with figures through July), let me first point out that the Bank are now making historical time series available (not sure a direct link works, so click on Statistics on the — newly rebranded! — webpage and then on Data under Credit, Money and Banking Statistics along the left hand side.)

The Bank are also now releasing figures that make the underlying credit situation easier to understand. Detailed figures on lending to households and non-financial corporations, including a breakdown by duration, are now available. The charts on year-over-year lending to firms and households in the press release are based on levels series that are cleaned for factors such as NAMA or exchange rate adjustments that affect the figures for total loans on the reported aggregate bank balance sheets.

Most useful of all, to my mind, is that the Bank now publishes figures for net amounts of new lending (i.e. new lending minus loans paid off) for both firms and households. For example, go to spreadsheet A.5 and click on the tab labelled Transactions and you’ll see these figures broken down by sector and maturity.

These figures are quite volatile from month to month. However, I ran up a chart (see below) of the three month moving average of net new lending to firms and households and it makes it pretty clear that there was a step down in credit availability in late 2008 and that net new lending has been negative for most of the past two years.

This time last year we were inundated with government politicians telling us that NAMA was going to get credit flowing. Well, there’s very little evidence of this occurring yet.

20 Billion euro extra to wind down Anglo?

Simon Carswell reports on an interview with Anglo’s Mike Aynsley  and Maarten van Eden in this morning’s Irish Times.  The number that jumps out is the extra €20 billion Mr. Aynsley claims it would cost to wind down the bank.  

Winding down the whole bank would cost €20 billion – on top of the cost of the split, which stands at about €25 billion – he said.

Maarten van Eden, Anglo’s chief financial officer, added that the split option would also retain €47 billion of the bank’s funding, which would otherwise have to be provided by the Government.

This comprises €23 billion of customer deposits, €16.5 billion of wholesale funding and €7 billion provided by other banks, he said.

A few observations: First, the €47 billion does not include funding from the ECB and Irish central bank, which I presume would be available (subject to liquidity programmes in place) in the wind-down scenario.  Second, surely Anglo’s “deposit franchise” is dependent on the government’s liability guarantees, and again it is not obvious that these it would not be available in a wind down – after all, the bank is presently not engaging in any new business either.  Finally, even in the worse case scenario where the deposit funding disappears, would it really be that much more costly if the government had to borrow to pay off the funders directly?   As it is, the markets are well able to see through the consolidated balance sheet of the government and the nationalised (and semi-nationalised) banking system.  And even with the guarantee, Anglo must offer premium rates (e.g. 3.5 percent on one-year deposits).

It would be good to get commenters’ views on the €20 billion premium cost estimate.

Business and Finance Piece on Banking Policy

With almost two years having passed since the Irish banks reached crisis point, it’s worth reflecting on how effective the government’s policies have been.  Here‘s a piece I wrote for this month’s Business and Finance on this subject. I gave the government A for effort and D- for execution. Written prior to yesterday’s Anglo figure, the D- might have been generous.

Anglo Interim Report for 2010:H1

The report is here. The press statement is here. The loss for the first half of the year is reported at €8.2 billion. And “The Minister for Finance has recapitalised the Bank with a further €8.58bn effective 30 June 2010, bringing total capital support to €22.88bn.”

As the Apres Match version of the Minister might say, that’s a lot of noughts.

After the Fall

In this Jackson Hole paper,  Carmen Reinhart and Vincent Reinhart find that the negative impact of severe financial crises on macroeconomic performance is long lasting, with real house prices remaining below the previous peak a decade after the crash, unemployment remaining at an elevated level and a cumulatively-large decline in GDP growth.