Thursday 26 April 2018

Bank bailout cost of €73bn manageable, says ESRI

Emmet Oliver

THE total cost so far of the bank bailouts is around €73bn, equivalent to 47pc of the entire output of the country in any one year.

But despite the massive numbers, the State economic think-tank said this level of support for the banks was "manageable" and the country could remain "solvent".

However, the Economic and Social Research Institute (ESRI) still criticised the sheer scale of support needed.

"The situation should never have arisen whereby the Irish taxpayer is faced with such a financial burden due to the behaviour of the private sector," the ESRI said.

The ESRI also expressed scepticism about whether the banks could support lending in the economy.


"It remains unclear as to whether the Irish banking system will be in a position to support strong growth through appropriate lending in the near future,'' said its quarterly report.

The organisation, in an unusual departure, criticised the way banks had been regulated, particularly Anglo.

"If the bank was of systemic importance, and that has never been established to our satisfaction, it should have been regulated accordingly."

The organisation said it was relieved to see the discounts on NAMA loans reaching 47pc and said this lessened concern that the taxpayer would overpay for the toxic loans.

But it added: "The revelations in respect of the scale of losses in Anglo Irish Bank and the consequent needs for recapitalisation were well beyond anything that we, like many others, had anticipated."

Of the €73bn, about €40bn of this is accounted for by NAMA, with €7bn gone into AIB and Bank of Ireland and an estimated €26bn to Anglo Irish, EBS and Irish Nationwide.

The ESRI said that, considering the size of the liabilities the State was taking on, there was now a need for Ireland to publish a national balance sheet.

"This would help clarify the net liabilities of the Government in relation to the banking system and track these over time,'' the ESRI report said.

It added that the money pumped into Anglo Irish and Irish Nationwide, and their future funding requirements, would come to 15pc of GDP.

"While such an addition to the national debt is obviously large, it is manageable. When combined with the resolute action on budgetary matters, we can feel increasingly assured that the overall solvency of the State is not under threat."

The organisation pointed out that demand for loans from banks was weak at present. But it also admitted that balance sheet problems for banks and higher costs of funding were also impacting on credit supply.

It said that based on ECB evidence, banks were also tightening up their criteria on who they give loans to.

The ESRI once again cautioned that the liabilities of Irish banks were often over exaggerated by some observers.

For example in February 2010, the liabilities of all financial institutions resident in Ireland amounted to €1,296bn. But those of Irish-owned banks were €567bn, less than half the total, and not all were covered by the government guarantee.

The other liabilities were due to the presence of international banks in the IFSC.

Irish Independent

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