Shelling out for bank's mistakes
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THE quietly spoken pensioner who threw eggs at the chairman of Allied Irish Bank yesterday provided the nation with a brief, if ineffectual diversion from our economic woes. But the cost of cleaning a suit is nothing against the billions of taxpayers' euro that have gone to prop up a banking system that indulged in reckless lending.
Since the banks are now almost entirely dependant on State support, the taxpayers' billions which underpin that support must be protected. At some stage the banks will return to a position in which they can raise funding on their own, without reliance on a state guarantee. Who knows when that will be? The National Assets Management Agency is taking a long time to come into being, and there will be no return to normality in the banks until it is sorting out good debts from bad. The six main lenders are thought to be sitting on about €60bn of property development loans, of which about €15bn may be troublesome.
More immediately, but just as worryingly, comes news that more than half of small and medium-sized companies have been refused credit by banks in the first three months of this year. ISME wants the Government to stop 'pussyfooting around' and force the banks to free up badly needed credit.
But normal lending may not resume for some time. The banks are concentrating on shrinking their balance sheets and raising capital. Recapitalisation should help but it is difficult to undo the damage inflicted in the past by secrecy, combined with hesitancy and delay on the part of government.
Confidence in our financial stability is essential if our banks are going to be able attract normal funding from abroad in the future. Hopefully the measures taken will be sufficient to override damage already done and that credit will, sooner rather than later, begin to flow to those small and medium enterprises.
In the longer term, the banking system needs to be thoroughly restructured.
There was much speculation about this last September when the €440bn state guarantee was announced. Since then, the banks have entrenched, each one concentrating on its own survival.
In the meantime, the banks are ducking and weaving; and it's not just pensioners' eggs that they're avoiding.
