If an Irish bank goes down? So what?

[grahamo]

Does anyone want to discuss the original question? What would happen if an Irish bank went down?

some fat cats would get poor! The remaining fat cats would quickly head for the hills with suitcases full of money in small denominations. Good Riddance!

 

[z103]

The remaining fat cats would quickly head for the hills with suitcases full of money in small denominations. Good Riddance!

Um, yes but that could quite possibly be our money!

 

[JohnBoy]

Does anyone want to discuss the original question? What would happen if an Irish bank went down?

some fat cats would get poor! The remaining fat cats would quickly head for the hills with suitcases full of money in small denominations. Good Riddance!

Also note that a disproportionately large slice of Irish pension assets are invested (still) in the Irish banks. This is not like Northern Rock where the hit to the equity holders is spread far and wide. If an Irish bank's shares were to become worthless many tax payers will get hit twice - once via their pension and again via their taxes.

 

[PaulHoughton]

some answers to what would happen...

But not only that, millions would have lost everything

Do you mean the customers? If so the customers had a deposit guarantee scheme for 90% of deposits up to 20K. So the customers would not have lost everything. An insolvent bank would still have assets (loans, mortgages, buildings) and would sell these on to compensate depositors.

millions of companies would have no credit to operate and would have to immediately shut-down and wouldn't be able to pay staff.

There is an open market for credit and if a bank drops out of the market a company can seek credit elsewhere. Not all companies are dependent on bank credit for their existence. Other avenues for obtaining credit include issuing bonds, arranging terms witrh suppliers and even paying the staff late. Debt should only be required by companies in a growth phase. It's a bet on future increased earnings. If some credit dependent companies go bust then so what? Living on debt is a risky business.

Sure it could be done like this and things would recover eventually, but what would be the point of that?

The point would be to correct the market and return to more realistic future expectations asap. A world where banks don't offer seven year car loans and mortages at 5 times gross annual income on 92% of a bs asset value. (both of these offers are still available see NIB and BoI). The point would be to encourage the efficient allocation of our wealth to realistic profitable ventures rather than into lunatic schemes.

Also note that a disproportionately large slice of Irish pension assets are invested (still) in the Irish banks. This is not like Northern Rock where the hit to the equity holders is spread far and wide. If an Irish bank's shares were to become worthless many tax payers will get hit twice - once via their pension and again via their taxes.

Irish banks are down about 80% on a a year earlier. So any pension fund that invested heavily in these bubble stocks has lost most of their money now. Pension funds are long term investments. They will now invest in more profitable companies resulting in a more efficient allocation of resources.

The national answer to the current correction seems to be that the government will attempt to turn back the market tide by taking all our money and injecting it into failed limited companies. They have turned the banks' debts into national debt overnight. This policy will fail as it always does. It will just take time to fail. I'm looking at you Alitalia, Irish Steel, GM and every other limping business that substituted government largesse for the money it couldn't raise through the markets because its operation was not viable..

Saying the Irish economy is short of credit is like saying that an alcoholic is short of booze. Clearly this is the accepted wisdom as we rush to find ways to enable irish house buyers and companies to borrow against falling asset values.

I think we are throwing the furniture on the fire when we should be having a banking shakeout and a dose of reality.

 

[mainasia]

some answers to what would happen...Do you mean the customers? If so the customers had a deposit guarantee scheme for 90% of deposits up to 20K. So the customers would not have lost everything. An insolvent bank would still have assets (loans, mortgages, buildings) and would sell these on to compensate depositors.

There is an open market for credit and if a bank drops out of the market a company can seek credit elsewhere. Not all companies are dependent on bank credit for their existence. Other avenues for obtaining credit include issuing bonds, arranging terms witrh suppliers and even paying the staff late. Debt should only be required by companies in a growth phase. It's a bet on future increased earnings. If some credit dependent companies go bust then so what? Living on debt is a risky business.

The point would be to correct the market and return to more realistic future expectations asap. A world where banks don't offer seven year car loans and mortages at 5 times gross annual income on 92% of a bs asset value. (both of these offers are still available see NIB and BoI). The point would be to encourage the efficient allocation of our wealth to realistic profitable ventures rather than into lunatic schemes.

Irish banks are down about 80% on a a year earlier. So any pension fund that invested heavily in these bubble stocks has lost most of their money now. Pension funds are long term investments. They will now invest in more profitable companies resulting in a more efficient allocation of resources.

The national answer to the current correction seems to be that the government will attempt to turn back the market tide by taking all our money and injecting it into failed limited companies. They have turned the banks' debts into national debt overnight. This policy will fail as it always does. It will just take time to fail. I'm looking at you Alitalia, Irish Steel, GM and every other limping business that substituted government largesse for the money it couldn't raise through the markets because its operation was not viable..

Saying the Irish economy is short of credit is like saying that an alcoholic is short of booze. Clearly this is the accepted wisdom as we rush to find ways to enable irish house buyers and companies to borrow against falling asset values.

I think we are throwing the furniture on the fire when we should be having a banking shakeout and a dose of reality.

Regarding insolvent banks selling property and assest, who would they sell to? Also, many Irish banks lease their own buildings. They are effectively worthless taking into account all the property bad debts they are holding, only held up because the government is propping them on. The government says it will back up all the deposits but where will the money come from if one really goes under, plus if one goes under it could easily knock on. Sounds sensationlist but if you look at the numbers could happen.
Without banks giving credit where can the company go to credit, at what cost? Only a fool would invest in a company with no bank credit and no customers. I think there would massive shutdowns and layoffs and it would quickly spiral.

 

[Irish Guru]

I have a mortgage with Irish Permanent. If they go down is my mortgage then null and void? Probably too good to be true.