Forgiveness will lead to a new crisis for banks
Those who can pay their mortgages must not be encouraged to get into arrears, writes Colm McCarthy
Published 04/09/2011 | 05:00
FINANCE Minister Michael Noonan and Central Bank governor Patrick Honohan addressed the Oireachtas finance committee during the week and both took the opportunity to inject some reality into what was becoming a surreal debate about mortgage 'debt forgiveness'.
There are two types of mortgage borrower in today's Ireland. A significant number of people cannot meet their obligations in full, principally because their incomes have dropped significantly since the mortgage was agreed. A much larger number can pay but would naturally prefer not to. Hopefully the provisions in bank balance sheets will be adequate to absorb the losses from the first group. If any encouragement is given to the second group, by politicians or anybody else, there will be a renewed banking crisis and a quick end to prospects of economic recovery.
Three Irish-owned financial institutions have survived the carnage, Irish Life & Permanent, AIB (which has absorbed the Educational Building Society) and Bank of Ireland. The first two are owned by the State. Bank of Ireland has survived in majority private ownership but only with massive State financial support and continuing State exposure to meet liabilities. Should any of these banks suffer bigger loan losses than have been provided for, the State is on the hook.