One of the most important arguments for NAMA is that, once unburdened of non-performing loans, the banks will be free to shower credit on the Irish economy encouraging growth etc.
I don't see how this will be the case.
Currently the banks have a significant number of non-performing loans on the asset side of their balance sheets. Apparently many of these "assets" are producing no return to the banks (with interest often being rolled up).
NAMA will replace these "assets" with an equivalent notional value of Irish government bonds (although unlikely to be worth face value if sold). These bonds will earn the banks 1.5% interest apparently.
Let's say 90 billion by 1.5% interest is a net subsidy from the taxpayer to the banks of just under 1.5 billion a year.
Will this be enough to encourage the retail banking sector to lend more freely? I don't think it will.
Would this 1.5 billion a year be better used to directly fund tax cuts to stimulate the economy? I believe it would. Instead this 1.5 billion will have to be raised through taxation.
The other argument is that the banks will use the bonds to gain access to ECB cash via repo and that having access to this cash will allow the banks to lend more freely. I am unsure about this. Capital ratios still have to be maintained and with an economy contracting at a rate higher than any in western Europe since the 1930s, I'm not sure what opportunities the banks will see to lend money in order to make a return. Certainly the easy money of lending to developers in a booming property market is gone; the lending will be difficult and dangerous. I don't remember the Irish banks ever having much of an appetite for this sort of lending and I'm not sure how NAMA will encourage them to develop one particularly during one of the most vicious asset bubble bursts in decades.
I suspect that NAMA will effectively just refund shareholders and the various classes of bond holders the losses the would have incurred as well as protect executives and employees of the banks. I see no compelling case that it will increase credit supply in the economy or contribute to the economy at all.
I don't see how this will be the case.
Currently the banks have a significant number of non-performing loans on the asset side of their balance sheets. Apparently many of these "assets" are producing no return to the banks (with interest often being rolled up).
NAMA will replace these "assets" with an equivalent notional value of Irish government bonds (although unlikely to be worth face value if sold). These bonds will earn the banks 1.5% interest apparently.
Let's say 90 billion by 1.5% interest is a net subsidy from the taxpayer to the banks of just under 1.5 billion a year.
Will this be enough to encourage the retail banking sector to lend more freely? I don't think it will.
Would this 1.5 billion a year be better used to directly fund tax cuts to stimulate the economy? I believe it would. Instead this 1.5 billion will have to be raised through taxation.
The other argument is that the banks will use the bonds to gain access to ECB cash via repo and that having access to this cash will allow the banks to lend more freely. I am unsure about this. Capital ratios still have to be maintained and with an economy contracting at a rate higher than any in western Europe since the 1930s, I'm not sure what opportunities the banks will see to lend money in order to make a return. Certainly the easy money of lending to developers in a booming property market is gone; the lending will be difficult and dangerous. I don't remember the Irish banks ever having much of an appetite for this sort of lending and I'm not sure how NAMA will encourage them to develop one particularly during one of the most vicious asset bubble bursts in decades.
I suspect that NAMA will effectively just refund shareholders and the various classes of bond holders the losses the would have incurred as well as protect executives and employees of the banks. I see no compelling case that it will increase credit supply in the economy or contribute to the economy at all.