Tuesday 6 December 2016

Banks forgot 75/25 rule

Published 07/03/2010 | 11:42

Sir -- Louis Ryan's letter (Sunday Independent, February 28) raised some interesting points as to why the main Irish banks had 'failed to see the obvious' and embarked on a spree of lending to developers and speculators, which will take decades to sort out.

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As a former bank official, I remember the famous '75/25' rule for bank lending.

This meant that a bank could only lend 75 per cent of its assets (mainly customer deposits) and was obliged to place the remaining 25 per cent in safe government bonds or securities, which could be redeemable in an emergency. This rule was to sort out the number of bank failures in the late 18th and early 19th centuries when a series of bad harvests or loans could trigger a 'run' on a bank.

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