Could the Central Bank have limited LTV's years ago?

[Complainer]

Anyone with even the mildest interest in this issue will enjoy the Irish Times 'blow by blow' description of what happened on Monday night - See [broken link removed] - The last line is pretty scary!

 

[ang1170]

Why shouldn't the banks be allowed to fail, and just have the state guarantee all deposits. Most of which could probably be recouped through an orderly sale of the assets of the failed institution.

Why are we bailing out bondholders and shareholders as well?

Exactly! Can anyone answer this, please?

 

[Purple]

You say it's not in the national interest to let any bank fail, ever - no matter how recklessly the run their business? The idea of risk-free enterprise is anathema to capitalism.

It’s not in the national interest to let banks fail in the current climate as doing so would cause a run on all Irish banks.

Why shouldn't the banks be allowed to fail, and just have the state guarantee all deposits.

As above

Most of which could probably be recouped through an orderly sale of the assets of the failed institution.

Does this not contradict your suggestion that “I'd say there is almost no chance it will be cost neutral and carries the distinct possibility of bankrupting the state.”

The state has essentially gone all-in with the entire economy on a poor hand hoping something will come up on the flop.

The screw-up took place over the last 10 years, they are just trying to get out of it now without losing the farm.

 

[Complainer]

Its not in the national interest to let banks fail in the current climate as doing so would cause a run on all Irish banks.

How do you come to this conclusion, given that the deposit guarantee scheme was in place?

 

[room305]

If we follow that line of reasoning then shouldn't we take that one step further back and say that the mistake was ceding our briefly held (1979-1998) currency independence because it is unrealistic to expect the ECB to set rates according to Irish needs.

I'm not sure if that would be your conclusion but it would certainly be mine.

It’s not in the national interest to let banks fail in the current climate as doing so would cause a run on all Irish banks.

Even if all deposits are guaranteed by the government?

Does this not contradict your suggestion that “I'd say there is almost no chance it will be cost neutral and carries the distinct possibility of bankrupting the state.”

Guaranteeing all deposits is likely to be cost neutral as the assets of the failed bank could be sold to cover depositors.

The screw-up took place over the last 10 years, they are just trying to get out of it now without losing the farm.

By doubling down? Chasing losses and applying hope as an investment strategy are two of the mistakes likely to lead investors to bankruptcy. I'm just shocked it is now government policy.

 

[tyoung]

The state should have got an equity stake for its troubles. Enough so that there was no rise in the share price following the announcement. That to me would indicate that the move was market neutral.
A bank can fail for liquidity or solvency reasons. This move removes, at least temporarily, the liquidity risks but the solvency issue remains. If enough of the banks' assets go bad, liabilities could swamp assets and in the event of a liquidation cost taxpayers.

 

[Purple]

How do you come to this conclusion, given that the deposit guarantee scheme was in place?

My apologies, I should have said all bank stocks (an even bigger run).

 

[z109]

My apologies, I should have said all bank stocks (an even bigger run).

But what does it matter if, in the short-term, stock prices fluctuate? It is extremely unlikely that an Irish bank (or any other bank for that matter) would have a successful public rights issue, so banks should already be looking to alternative means to raise capital.

 

[Purple]

But what does it matter if, in the short-term, stock prices fluctuate? It is extremely unlikely that an Irish bank (or any other bank for that matter) would have a successful public rights issue, so banks should already be looking to alternative means to raise capital.

Are you suggesting that AIB and BOI etc trading at under ten cents would have no damaging impact on Ireland in general?

 

[z109]

Are you suggesting that AIB and BOI etc trading at under ten cents would have no damaging impact on Ireland in general?

That damage is already done in the precipitous decline of their share prices over the past year.

The bailout is another nail in the reputational coffin.

Nobody needs a bailout if they aren't in trouble.

 

[Purple]

That damage is already done in the precipitous decline of their share prices over the past year.

The bailout is another nail in the reputational coffin.

Nobody needs a bailout if they aren't in trouble.

So things weren't going to get worse on the stare price front and the bail out damaged their reputation? I disagree.

 

[Complainer]

My apologies, I should have said all bank stocks (an even bigger run).

If that is the case, the obvious action is to nationalise - If the state is the bear the risk, it must have the control and the ownership too. As it currently stands, the state bears the risk and the shareholders will take the gain if/when it comes.

 

[Purple]

If that is the case, the obvious action is to nationalise - If the state is the bear the risk, it must have the control and the ownership too. As it currently stands, the state bears the risk and the shareholders will take the gain if/when it comes.

Do you think that the state should nationalise the banks?
Do you think that this would have a good or bad impact on capital flows into Ireland?

 

[z105]

How come the US Govt package comes to $700 bn for 220m people, and our package comes to €400 bn for 4m people

You might find it's more like 303m people ?

[broken link removed]

 

[Complainer]

Do you think that the state should nationalise the banks?
Do you think that this would have a good or bad impact on capital flows into Ireland?

It didn't seem to cause too many problems for NOrthern Rock. They had to limit the capital inflows to stop them dominating the UK market.

 

[room305]

So things weren't going to get worse on the stare price front and the bail out damaged their reputation? I disagree.

I don't think he suggested bank shares weren't going to decline further, just that the bailout hardly helped their reputation.

If that is the case, the obvious action is to nationalise - If the state is the bear the risk, it must have the control and the ownership too. As it currently stands, the state bears the risk and the shareholders will take the gain if/when it comes.

I'm not sure if nationalisation is the best option for insolvent banks, I'd prefer the appointment of a liquidator. Sell off the assets, repay the depositors, then the bondholders.

However, I agree fully that if the state going to guarantee the banks they should assume a large equity stake, at least equal to the guarantee. They should also fire everybody at board and senior executive level, appoint a new board, block dividend repayments during the period of the guarantee and eliminate all "golden parachutes" or bonuses during this period also.

Do you think that the state should nationalise the banks?
Do you think that this would have a good or bad impact on capital flows into Ireland?

While I don't agree with nationalisation it would at least provide the public with the benefit of full disclosure of the bank's lending and the potential liabilities to which the taxpayer is now exposed.