Brendan Burgess
Founder
- Messages
- 54,766
It is now imperative that all the banks reduce their risk. This will decrease the risk to the Irish taxpayer. The first priority is to reduce the risk - let the shareholders worry for themselves.
The problem with most of these suggestions is that they have a negative side effect. Limiting loans to home buyers will reduce construction activity even further and may speed up the collapse of some of the big builders and thus cause bigger problems for the banks.
1) Suspend all dividends. The banks would probably be happy to be instructed to do this. Doing it voluntarily is a bad signal to the stockmarket.
2) Consider raising additional shareholders’ funds. Shareholders won’t want to contribute new funds to banks whose commercial activities are limited.
3) Limit the amounts paid on deposits. For example: to ECB -1%. It’s farcical that some banks are paying 6% now even with a government guarantee.
4) Stop overseas lending – would this contravene EU rules.
5) Limit home mortgages. For example to 70% LTV and 3 times income or such other limits as are prudent.
6) Limit non home mortgages to say, 50% LTV or such other limit as is prudent.
7) Stop new lending to property developers. It may be necessary to allow some new lending to existing clients to complete projects.
8) Sell off overseas subsidiaries. Unfortunately all of these would be at fire-sale prices. But at least, put them on the market. What happens to the guarantee is a subsidiary is sold? And well capitalised banks may have great opportunities to buy smaller banks at fire-sale prices.
9) Dramatic changes to boards. The Irish Nationwide is the one which most needs strengthening or replacing.
10) Sale and leaseback of premises.
11) Limit trading deals not linked to underlying commercial transactions.
12) Adopt a very conservative approach to valuing existing loans. Part of the problem is the uncertainty. It’s very difficult to value loans to property developers.
13) Encourage the big two banks to buy part of the loan books of the smaller banks. This would be very difficult to manage as it would have to be done at market prices rather than book prices. And it would not want to weaken the larger banks.
Fortunately, it’s our two smallest institutions which need the most attention – Irish Nationwide and Anglo Irish Bank. Limiting their lending activities will not affect the level of economic activity so much.
The problem with most of these suggestions is that they have a negative side effect. Limiting loans to home buyers will reduce construction activity even further and may speed up the collapse of some of the big builders and thus cause bigger problems for the banks.
1) Suspend all dividends. The banks would probably be happy to be instructed to do this. Doing it voluntarily is a bad signal to the stockmarket.
2) Consider raising additional shareholders’ funds. Shareholders won’t want to contribute new funds to banks whose commercial activities are limited.
3) Limit the amounts paid on deposits. For example: to ECB -1%. It’s farcical that some banks are paying 6% now even with a government guarantee.
4) Stop overseas lending – would this contravene EU rules.
5) Limit home mortgages. For example to 70% LTV and 3 times income or such other limits as are prudent.
6) Limit non home mortgages to say, 50% LTV or such other limit as is prudent.
7) Stop new lending to property developers. It may be necessary to allow some new lending to existing clients to complete projects.
8) Sell off overseas subsidiaries. Unfortunately all of these would be at fire-sale prices. But at least, put them on the market. What happens to the guarantee is a subsidiary is sold? And well capitalised banks may have great opportunities to buy smaller banks at fire-sale prices.
9) Dramatic changes to boards. The Irish Nationwide is the one which most needs strengthening or replacing.
10) Sale and leaseback of premises.
11) Limit trading deals not linked to underlying commercial transactions.
12) Adopt a very conservative approach to valuing existing loans. Part of the problem is the uncertainty. It’s very difficult to value loans to property developers.
13) Encourage the big two banks to buy part of the loan books of the smaller banks. This would be very difficult to manage as it would have to be done at market prices rather than book prices. And it would not want to weaken the larger banks.
Fortunately, it’s our two smallest institutions which need the most attention – Irish Nationwide and Anglo Irish Bank. Limiting their lending activities will not affect the level of economic activity so much.