I am glad to see that, albeit in his characteristically oblique way, J.-C. Trichet is pushing again for an ECB role in bank supervision.
I have long been an advocate of a euro-wide bank regulator. Isn’t it now obvious that we in Ireland should be cheerleaders for an early move in this direction. We urgently need all the help we can get in financial regulation — even for nationalized banks.
Buiter has a nice piece today comparing Iceland with the UK. It is implicitly a scathing criticism of Irish government policy to date.
This post by Simon Johnson on the Baseline Scenario blog provides an interesting international perspective on bank nationalisation. You can read it here:
http://baselinescenario.com/2009/01/20/nationalization-is-not-inevitable/#more-2085
Lots of readers will have seen this:
How much the collapse of Anglo-Irish Bank was due to insider borrowing remains unclear. There seems to be much more to it than that, and perhaps in the end Seanie Fitz—and other insiders, yet unnamed—will repay with interest the millions they owe the rest of us.
However, in the (happily few) sensational failures like Anglo’s in Irish banking history, secretive insider borrowing has been a big part of the story.
The potential conflict of interest for bankers short of capital has long been obvious. For this reason, eighteenth-century Irish banking legislation banned merchants engaged in foreign trade from being bankers. The restriction, alas, led to undercapitalized banks.
Joint-stock banking met that problem, and produced the relatively stable banking system that lasted from 1825 to 2008. However, there were some failures along the way, and it may be worth recalling that the two most famous stemmed from the abuse of insider borrowing privileges.
In early 1856 the Tipperary Bank collapsed when it was discovered that its leading light, John Sadleir M.P., had committed suicide on Hampstead Heath. It soon emerged that he owed his own bank nearly £300,000 (something like €30 million in today’s money).
In 1885 it was the turn of the Munster Bank, laid low by the cronyism of a coterie of Cork merchants. For an account of that episode see http://irserver.ucd.ie/dspace/bitstream/10197/441/3/ogradac_bookchap_pub_068.pdf.
In the cases of the Tipperary and the Munster, unsuspecting but relatively well-heeled shareholders bore the brunt of the directors’ swindling. Like Anglo shareholders last week, they protested loudly, but they certainly did not expect the government to bail them out. In addition, the banks’ depositors were also badly burnt.
History says that insider lending may be work in highly unusual circumstances. On this the classic work is Naomi Lamoureaux’s Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England (Cambridge, 1996). But Lamoureaux’s yankee banks may be the exceptions that prove the rule. In general insider lending is dangerous, and a bad deal for both customers and shareholders.