When it passed the TARP Bill authorising the Treasury Department to spend €700 billion to stabilise the US financial sector, Congress set up a Congressional Oversight Panel (COP) to oversee how the TARP money was spent. The COP is chaired by Elizabeth Warren, a law professsor from Harvard and has held regular hearings and issued monthly reports. This month’s report is “Taking Stock: What Has The Troubled Asset Relief Program Achieved?”
There were some entertaining media reports last week about the appearence of AIB and Bank of Ireland executives before the Oireachtas Committee on Finance and the Public Sector. I decided at the time not to comment on these reports because the full transcripts of these meetings eventually get put online and these are a better way to judge what was said.
The transcript is now online here. The most insightful aspects of the committee meeting were the exchanges relating to what the banks were going to do with the NAMA bonds given to them by the Irish government.
Anyone following the NAMA debate over the past few months will have regularly seen and heard members of the government explain how NAMA was going to get credit flowing: NAMA would take ownership of the banks’ property loan portfolios in return for government bonds, which the banks would then use as collateral to get repo loans from the ECB and then these funds would be loaned out to Irish firms and households.
The statements made at the committee meeting by CEOs Richie Boucher of BOI and Eugene Sheehy of AIB did not at all conform with this story. Indeed, the general tone of their statements was that there would be very little swapping of NAMA bonds for ECB loans. Instead, as illustrated by Sheehy’s already infamous “trickle-down” comment, the only benefit to getting credit going in Ireland would be a lower cost of market funding for Irish banks which might get passed on to customers.
The NAMA Bill has passed all stages of the Dail and is on its way to the President. Worth marking with a thread, I think.
What do you think of the final bill? The draft bill was released in August to allow for debate and suggested improvements. Did this process work well? Is the final bill much better than the original draft bill? Will the passage of the bill stabilise the banking system? Will it get credit flowing?
RTE news had a story last night on a report on the Irish hotel sector written for the Irish Hoteliers Federation by Peter Bacon.
The highlight:
John Kilraine: Economist Peter Bacon, who compiled today’s report, said across the country zombie banks are allowing zombie hotels to remain open because they owe the banks a lot of money.
Peter Bacon: The problem is the most insolvent hotels are not the ones that are going under and the reason they’re not going under is because it’s not in the banks’ interests to foreclose upon them.
And the reason it’s not in the banks’ interests to foreclose on the insolvent hotels is because the banks want to sell these loans on to NAMA at their “long-term economic value”. Why foreclose on them now when you can get NAMA to carry the can? The report recommends that stakeholders
should ensure that banks fully recognise bad loans within the hotel sector and face any capital adequacy issues which might follow.
The report also warns about the potential damage to profitable hotels if NAMA shows forebearance to those hotels with bad loans.
Now if I recall correctly, the NAMA plan was recommended to the government by an economic consultant of some sort.
Writing in today’s Irish Times, property consultant Bill Nowlan writes:
Nama’s prime job is to get back the €54bn given to the banks to enable it to repay the ECB.
I don’t want to pick on Bill Nowlan because this kind of comment appears regularly in all our media outlets from commentators who are attempting to explain NAMA to the public. However, I do think it is worth pointing out that NAMA is not borrowing money from the ECB.
What I find odd about this is that a plan that really isn’t very complicated—the Irish government issues bonds to the banks in return for property-backed loans—has been described so often by government sources as a complicated operation involving the ECB that pretty much everyone now believes that this is the case. But really, it’s not.
I’m really not sure what I can say about this other than it’s pretty sad that a program involving spending €54 billion of public money is so poorly understood.