Financial Crisis

[pete]

I hope the FinReg are investigating potential insider trading/market abuse as it looks fishy.

Do they ever do that? Not convinced the regulator does much really... They keep saying everything in ok but why do the markets not believe them?

The regulator in the UK seemed to be asleep which almost let Northen Rock & Bradford & Bigley go under.

[OneRedArmy]

Do they ever do that? Not convinced the regulator does much really... They keep saying everything in ok but why do the markets not believe them? .

Insider trading is very, very difficult to prove in a court of law, verging on the impossible.

Regulator's do what they can but they can't pre-approve every decision banks make.

The regulator in the UK seemed to be asleep which almost let Northen Rock & Bradford & Bigley go under.

Northern Rock and B&B went under, there's no almost. FSA definitely asleep on the Rock case, on B&B I'd say they knew it was coming and were powerless to do anything about it as it was too late.

Nobody has ever really spent much time on widespread systemic failure (which is what we are seeing now). Regulator's generally focus on specific institutional risks (eg rogue traders etc.).

What we are seeing now is that the whole industry went in the wrong direction.

[Macy]

Given that the EU have already stated they are reviewing the current plan from a competition standpoint I'd say nationalisation of the whole sector is a non-runner.

And the EU have said they'd be investigating this deal on competition grounds too.

Also, the guarantee is being provided at commercial rates, ergo there is an immediate return. Nationalisation would be a huge cost with only a dim prospect of a future return.

Not on last nights share prices - 50% stake in the 6 would've cost €5 billion, as opposed to €400-500bn risk of this deal.

This was a liquidity driven event. Credit decisions such as you mention, have been, are and will continue to happen. Builders/developers and landowners can't breathe easy, as this fundamentally has got nothing to do with them. If you have info to the contrary please provide it, otherwise you are descending into Joe Duffy territory.

"Joe Duffy territory" possibly the most cutting insult I've ever got on line! Guaranteed bad debts mean that the bank is more likely to sit it out rather than take assets off the builders, imo.

[Bald Student]

Northern Rock and B&B went under, there's no almost. FSA definitely asleep on the Rock case, on B&B I'd say they knew it was coming and were powerless to do anything about it as it was too late.

Would it be fair to say that the regulator can't do much now? That the banks are where they are because the regulator wasn't tight enough on them in the past?

Not on last nights share prices - 50% stake in the 6 would've cost €5 billion, as opposed to €400-500bn risk of this deal.

Unless I'm missing something, buying 50% of the bank doesn't in itself do anything to remove the risk. Any bad debts that there are will still exist.

[Macy]

Unless I'm missing something, buying 50% of the bank doesn't in itself do anything to remove the risk. Any bad debts that there are will still exist.

The bad debts still exist now. Even a part nationalisation would've have had the same effect as the deal, only with some form of return for the taxpayer.

[Bald Student]

The bad debts still exist now. Even a part nationalisation would've have had the same effect as the deal, only with some form of return for the taxpayer.

Maybe I'm just slow but I genuinely don't follow what you're saying.

If the government had guaranteed the deposits by buying half the banks shares it would have exactly the same liability as it has now but would have paid 5 billion (or whatever) to the current shareholders to take on the liability. The government would still have to pay out if the banks ran short of money, I don't see how taking equity would have removed the 400-500 billion euro risk.

[Macy]

It wouldn't have to put up the €500bn as instead the €5bn investment would be enough to increase the Irish Banks credit rating and get them out of any pending liquidity problems without explicitly exposing the state to the risk it has. It would also have the power to penalise the executives that got the banks into this mess, and would have more control over future lending policy to avoid it happening again. At the moment there is zero consequence for the banks. If all goes well, the banks will enjoy and keep all their bumper profits (and their mega bonuses) as it ever was, and if it goes belly up they'll be bailed out by the Government at no cost to them or the shareholders. It's a no lose for the banks and the bankers in charge.

[pete]

The government already guarantees 100k per account. In current circumstances unlikely any one is holding more than 100k in any bank if he can. Extending the guarantee to inter bank transactions hardly makes much difference & they will never have to pay 500bn anyway.

[Bald Student]

I'm no expert at this stuff (as you can probably tell) but if the banks have a liquidity problem rather than a solvency one then I don't see how the government stands to loose at all in the long run. If what you're saying is correct and the banks need 5 billion euro to get them over the current problems but they'll be able to repay it in the long run then the government isn't exposed at all. If the opposite is true and the banks assets have dropped to a value that they're not able to cover liabilities, then the government's exposed either way.

Also, are you correct when you say "and if it goes belly up they'll be bailed out by the Government at no cost to them or the shareholders."? In all the foreign examples the shareholders' investments have been forfeit when a bank went bust and the banks profits weren't protected either, they were put towards covering the liabilities.

[OneRedArmy]

Macy, the equity investment you have suggested wouldn't have taken away the need to provide the same liquidity support.

You are right that it would better reward Government for providing the liquidity but in and of itself, it would likely have resulted in the Government very quickly holding equity that was worth zero when one or more of the banks ran out of liquidity.

In terms of zero consequences to the banks, pretty much every employee of the aforementioned banks, from the CEO to the staff in the branches is sitting on shares worth a fraction of what they were. For those with a lot of years service (regardless of seniority), the loss is massive.

Its not heads on a plate stuff but again its very far from "no lose". As for "future bonuses and profits", I can't see that being an issue for quite a while.

[tricky_colour]

I don't really understand your point to be honest. Maybe if you used real examples it might be clearer?

The point is that building houses creates wealth, it's stating the obvious.
If you build a house you have something of value, if you build two of them you have twice the value etc..
It may lower house prices but that's a good thing, high house prices make people poor.

[pete]

Not feeling good about the government guarantees any more.

We are told everything is but no other government has made this move. The guarantee is i believe for all debts over two year period which is fairly wide ranging.

All I can see is this has boosted bank shares which does not solve liquidity issues. Again we were told the banks have access to cash in Europe.

[OneRedArmy]

The point is that building houses creates wealth, it's stating the obvious.
If you build a house you have something of value, if you build two of them you have twice the value etc..
It may lower house prices but that's a good thing, high house prices make people poor.

It only creates wealth if there's demand at a profitable price.

Not feeling good about the government guarantees any more.

We are told everything is but no other government has made this move. The guarantee is i believe for all debts over two year period which is fairly wide ranging.

All I can see is this has boosted bank shares which does not solve liquidity issues. Again we were told the banks have access to cash in Europe.

Woah, slow down Pete.

Lets leave the share price aside. It, in general terms, is nothing other than an indicator of market feeling in any company.

The Government guarantee should provide WAY more liquidity than the ECB fund to date by making it attractive to other banks to lend (as they always had pre-credit crunch).

This action stopped a bank going under last night. You may not agree with that decision (moral hazard etc.), but thats almost certainly a fact.

But its not a silver bullet for the poor lending decisions made over the last 5 years. As Macy alluded to, the next 2-3 years will be bad from a credit perspective as all the dodgy developer and investment loans wash through the system. A lot of these need to be provided for, and most probably written off in many cases, as the security will be close to worthless (certainly landbanks aren't worth tuppence).

So the liquidity provisions were a necessary decision to keep the domestic banking sector afloat. But many, many hard decision lie ahead. Based on the Japanese experience, ignoring and procrastinating over writing down loans only extends a recession.

Time to take our medicine.

[Macy]

I really don't know about this bill. Regardless of the other options open to Government, they can't seem to be able to give any concrete proposals on how this will work, how much it'll cost the tax payer, for what return and how it'll be controlled. The whole putting all the power with the Minister for Finance also appears to be questionable constitutional. It's a total mess.

[Reality Bites]

I think the Banks should pay for this bailout with more that just Government protection charges, I think Heads should roll in the top 6 Banks, I mean CEO should be fired for reckless lending over the last few years..In the US this would be the case

[pete]

I think the Banks should pay for this bailout with more that just Government protection charges, I think Heads should roll in the top 6 Banks, I mean CEO should be fired for reckless lending over the last few years..In the US this would be the case

In the US it was a whole lot worse but the FBI have already been investigating. They will jail people if have evidence something which would never happen here. I am not suggesting we have anything like the sub prime mess they have. Has anyone ever been jailed for insider trading in Ireland?

I heard that rumours of money moving out of UK banks into Irish ones due to this guarantee. Looks like Lenihan might have forced the hand of other governments.

[Pauro 76]

Question for ye, with Halifax only just launched last year in Ireland, they're merging with Lloyds TSB in UK. What's going to happen to Halifax in Ireland?

[OneRedArmy]

I think the Banks should pay for this bailout with more that just Government protection charges, I think Heads should roll in the top 6 Banks, I mean CEO should be fired for reckless lending over the last few years..In the US this would be the case

I think heads will roll in due course.

But, lets be clear, the current level of crystallised losses in Irish banks is extremely low.That will change going forward as our own property bubble washes through obviously.

Also, what happened to shared responsibility?

What all those fools who leveraged themselves up to the hilt? What about the Government who when the brakes should've been applied just added more fuel to the fire?

The scapegoatery at the minute is ridiculous. Joan Burton made a fool of herself last night. No wonder Labour are unelectable.

[Macy]

The scapegoatery at the minute is ridiculous. Joan Burton made a fool of herself last night. No wonder Labour are unelectable.

On what, as what I saw on Prime Time (albeit interupted by a teething baby), it was O'Dea that was fumbling and not being able to answer specifics? It's only right that the opposition point out who helped fuel the bubble - Government and bankers. Mores the pity FG seem to have completely caved on it.

[anto1208]

Question for ye, with Halifax only just launched last year in Ireland, they're merging with Lloyds TSB in UK. What's going to happen to Halifax in Ireland?

Think you are covered by the UK goverment upto 50k and they will change name to Loyds TSB or what ever brand name they will use then. ( they where bank of scotland ireland here before Halifax )