Taoiseach Martin: "We did not bail out the banks!"

Brendan Burgess

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I have been saying for years that we bailed out the depositors and most bondholders and the staff but not the banks. Shareholders lost most or all of their money.

The Taoiseach said this in the Dáil yesterday.




Mr Martin said in response to People Before Profit TD Richard Boyd Barrett: “I’ll talk to you about the banks. The banks were not bailed out. Shareholders in the banks were not bailed out. The State took equity. The shareholders were not bailed out. That’s not a popular thing to say, but it is a fact”

But the Dun Laoghaire TD insisted “they were”.
 

NoRegretsCoyote

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There is nuance of course, but saying "the banks were not bailed out" is just false.

He should have said: "We bailed out nearly all depositors to preserve financial stability and to protect the real economy. The bank shareholders all lost their equity"
 

WolfeTone

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The main beneficiaries were the ordinary depositors

If we are going to get technical about what was a bailout to fill a black hole of private debt then this narrative also needs to be called out. The banks 'ordinary' depositors were already covered under the Central Bank Deposit Guarantee Scheme to the tune of €100,000 per person, per institution. Depositors, the vast majority having nowhere near €100,000 on deposit, are insured under the scheme that is supposed to be funded by the very credit institutions that hold the deposits.
The fact that banks were facing an inability to pay deposits without the State cash injection means, the banking institutions were bailed out.
 

NoRegretsCoyote

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With apologies to resorting to semantics, here is a definition of a bailout:

the act of helping a person or organization that is in difficulty, usually by giving or lending money:

Of course the beneficiaries were the ordinary depositors, pensioners and credit unions, but the banks did receive a bailout.
 

Brendan Burgess

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As Red says, the guarantee was only €20k. And was it a separate fund? Did the taxpayer have any obligation to top it up in the event of a shortfall?

It was wrong to guarantee the deposits and bondholders at the expense of the taxpayer.

Brendan
 

Brendan Burgess

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With apologies to resorting to semantics,

It is pure semantics. The media and politicians seem to insist that the banks in some way benefitted from the guarantee. In fact, it was the ordinary depositors, pension funds, bond holders and credit unions who got the benefit.

I have heard the Credit Unions saying that they were never bailed out. They would have nearly all gone bust, if the government had not guaranteed their deposits in Anglo and the Irish Nationwide.

What is galling about this is that the depositors in Anglo and Irish Nationwide got a higher rate of interest because of the perceived risk and yet the deposit was retrospectively guaranteed by the taxpayer.

Brendan
 

WolfeTone

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Prior to September 2008, the guarantee was only 20,000

True, and the more 'ordinary' you are, the more likely your deposits to be at, or below that level. In the main, the largest cohort of 'ordinary' depositors would have had deposits less than this amount and already covered. The banks were flagging an inability to insure these deposits, that they were supposed to fund, and in turn needed a bailout.
So perhaps the correct terminology is the "banking institutions needed a bail out". If ordinary depositors lost their deposits, despite being supposedly insured up to €20,000, what future for any banking institution thereafter?
 

RedOnion

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True, and the more 'ordinary' you are, the more likely your deposits to be at, or below that level
No. The typical 'deposit' account (as in a dedicated deposit account, separate to current account) was far in excess of 20,000 at the time.
Remember, interest rates were 4% +. Pensioners in particular would have have large deposit balances, and using the interest to supplement their pensions.
 

WolfeTone

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The typical 'deposit' account (as in a dedicated deposit account, separate to current account) was far in excess of 20,000 at the time.

I will take your word for it. The core point im making is that €20,000 of all deposits were already protected under the Deposit Guarantee Scheme which was supposed to be funded by the credit institutions that held the deposits.
The banks were signaling that they would not be able to cover these amounts under the Deposit Guarantee Scheme. They needed a bailout to do so.

Had the banks not been able to guarantee these deposits then the consequences would have been drastic, not least the credibility of banking institutions themselves would have been in tatters.
 

Coldwarrior

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There is nothing technical or semantic about it.

It's the reality. It's the truth.

Politicians should point out the truth even if it's unpopular.

Brendan

I disagree, as the only surviving minister of the Fianna Fail government from that terrible period in our country's history, he shouldn't go near the subject at all, he's guaranteed to take political damage for no benefit. He's only handing easy sound bites to Sinn Fein and PBP etc.
 

Sadim

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I have been saying for years that we bailed out the depositors and most bondholders and the staff but not the banks. Shareholders lost most or all of their money.

The Taoiseach said this in the Dáil yesterday.




Mr Martin said in response to People Before Profit TD Richard Boyd Barrett: “I’ll talk to you about the banks. The banks were not bailed out. Shareholders in the banks were not bailed out. The State took equity. The shareholders were not bailed out. That’s not a popular thing to say, but it is a fact”

But the Dun Laoghaire TD insisted “they were”.

Very good distinction Brendan, it wasn't a unilateral bailout the way it is portrayed. And bailout suggests the govt got nothing in return but they actually own 15% of BOI and is it 99% of AIB. Sure, the realisable value of those holdings will never recover the money invested in full. In strategic terms though the govt had no choice but to invest to keep BOI/AIB afloat otherwise depositers and bondholders alike would have been burned. What basis do you have then to restart a retail banking sector if as a govt you show you are prepared to do that? What economy can survive with a retail banking sector?
 

RedOnion

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The banks were signaling that they would not be able to cover these amounts under the Deposit Guarantee Scheme. They needed a bailout to do so.
The banks signalled that they couldn't cover the 20k?
That's news to me if I've understood what you're saying.
 

NoRegretsCoyote

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The media and politicians seem to insist that the banks in some way benefitted from the guarantee. In fact, it was the ordinary depositors, pension funds, bond holders and credit unions who got the benefit.

No action by the government would probably have led to the entire Irish banking system going into ordinary insolvency*.

This would have been really bad for depositors of course, but the bailout helped to keep the banks afloat as entities and their staff pretty much kept their pay and jobs at a time when unemployment was rising 5pp in a year. A few of these corporate entities (Anglo, INBS) don't exist at all anymore but walk down a main street and you will still see AIB, ptsb, BoI branches, etc.

So saying "We did not bail out the banks" as MM did is just wrong.



*For the record this would have been a very bad policy indeed.
 
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