Saturday 10 December 2016

UK using Ireland's mistakes to reform banks, says expert

Emmet Oliver

Published 14/04/2011 | 05:00

THE UK authorities are reforming their banking system based in large measure on mistakes that caused Ireland's financial crisis, a key report released this week claims.

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The 'Vickers report', written by economist John Vickers, sets out a number of measures to reform UK banking, including possible writedowns for bondholders, ring-fencing sensitive parts of the banking system and reducing the dominance of certain groups by ordering branch sell-offs.

The report was dismissed this week as nothing more than "tinkering'' by government critics, as it did not order the formal separation of investment banking from retail banking.

The experience in Ireland over the past three years has been pinpointed by the author as giving the UK pause for thought about preventing future crises there.

"As the difficulties being experienced by Ireland illustrate, a large banking sector can represent a real threat to the public finances,'' states the report.

"Had the asset quality of UK banks turned out to be as bad as that in Ireland, the hit to the UK's fiscal position would have been significantly worse than it was. If the public finances become unable to bear the costs of bailing out a failing banking system, the 'too big to fail' problem becomes a 'too big to save' problem,'' the economist said.

The size of Ireland's banks at the time of their collapse was a key lesson to be learned by UK regulators, Mr Vickers added.

"The experience of Ireland, whose banking assets are collectively smaller in relation to GDP than the UK's during the recent crisis, provides a vivid example of this risk,'' he wrote.

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