What the bankers knew on the night of the guarantee

Readers will definitely be interested in this piece by Tom Lyons on what the Ireland’s top bankers (and Indecon’s Alan Gray) knew, chiefly about the state of Anglo Irish Bank, in the run up to the crisis. There is at least one record of the events of the night as set down by Dermot Gleeson.

The (reported) state of knowledge is pretty much the same:

  • No one knew how deeply damaged Anglo’s balance sheets were, or could be;
  • Much of the focus was on restoring confidence in the system, with everyone talking in terms of liquidity rather than solvency issues, and in terms of preventing a run on the banks.
Despite this invaluable reporting by Tom Lyons one wonders why it took 2029 days to put these accounts into the public sphere. Brian Cowen was right when he argued in his GeorgeTown speech (.pdf) that “if we are to learn from the crisis it is necessary to understand why many of the actions taken seemed sensible at the time”.
Cowen goes on to write:

We had to deal with this crisis in real time. Our view at the time was that we would get one shot at calming the markets.

Tom Lyons’ piece seems to back up this account.

This piece by the FT’s Vincent Boland, featuring TCD’s Constantin Gurdgiev, The Irish Examiner’s Mick Clifford, and (ahem) myself has more reaction to the fallout from the Anglotrial.

Three (and a bit) Years on from the Banking Guarantee

Today is the third birthday of Ireland’s blanket guarantee of 6 banks’ assets and liabilities, and 64 billion euros later, let’s take the opportunity to reflect on all that has gone on in Irish public and economic life, to assess how much real change there has been within the institutions that helped bring about the crisis, and perhaps to look a little towards the future. So fire away in the comments.

One small(ish) point though, from something I’m working on with my UL colleague Vincent O’Sullivan. It is true that the late Mr Lenihan did guarantee the banks three years ago. It is not true that that is when State support for these banks began, and we shouldn’t mix the two up. Banks like Anglo were in trouble before that, and to a significant extent. These are not (well not yet anyway) historical curiosa, because we still need to understand and deal with the issues our Emergency Liquidity Assistance (ELA) raises.

To take Anglo, for example: The first mention of ELA which was the supported provided in March 2008 was in the interim accounts for 2009 of Anglo Irish Bank.  From note 20, page 46:

“These deposits include €13.5 billion (30 September 2008: €7.6 billion; 31 March 2008: €3.6 billion) borrowed under open market operations from central banks and €10.0 billion (30 September 2008: €0; 31 March 2008: €0) borrowed under a Master Loan Repurchase Agreement (‘MLRA’) with the Central Bank and Financial Services Authority of Ireland. The interest rate on this facility is set by the Central Bank and advised at each rollover, and is currently linked to the European Central Bank marginal lending facility rate.”

In the 2009 annual report the amount lent by the CBI has increased to €11.5 billion. Collateral pledged has fallen to €12.49 billion, implying a much lower haircut of €990 million on €12,490 million, or 7.9%. See (d) on page 91 and Note 37 on page 104.

The 2010 interim report shows the collateral posted by Anglo Irish bank becomes mostly promissory notes issued to that bank by the Irish government and that the ‘MLRA’ agreement has, for the most part been superseded by a ‘special masterloan repurchase agreement (SMRA)’.

For more background information on what happened, Simon Carswell’s book Anglo Republic is excellent and highly recommended, though it doesn’t go into the ELA detail.

Fir Tree Capital Opportunity Master Fund LP v. Anglo Irish Bank Corp.

NAMA Wine Lake reports on this case.