Wednesday 13 December 2017

Bank rescue is the third most expensive in history

Report reveals staggering cost of €33bn operation

Anglo: 'large proportion' of the cost according to Dermot O'Leary. Photo: Bloomberg News
Anglo: 'large proportion' of the cost according to Dermot O'Leary. Photo: Bloomberg News

Emmet Oliver Deputy Business Editor

IRELAND'S banking crisis will be one of the most expensive in history, according to a report from Goodbody Stockbrokers.

Based on figures for the developed world since the 1970s, it is already the third most expensive, said the broker. Ireland's bank rescue will cost 20pc of GDP and this doesn't even include the cost of NAMA or the bank-guarantee scheme.

Only South Korea and Japan have had more expensive banking failures, according to figures included in the report by chief economist Dermot O'Leary.

Using the costs of capitalising the banks to date (€33bn), O'Leary said this was well above the "average cost" of banking crises internationally, which were usually about 11pc of GDP.

The Scandinavian banking crises of the 1990s were highly expensive and long-lasting, but their costs were nowhere near those of Ireland.

Mr O'Leary also pointed that since the Irish banking crisis began, the economy had shrunk by 12.3pc, which has magnified the impact.

He admitted that the cost of the crisis had been far higher than Goodbody had previously estimated.

"A large proportion of this stems from Anglo Irish Bank, which may cost the taxpayer €22bn," he said. However, attempts had been made to move beyond the problem with NAMA and the new stringent capital requirements laid down by the Financial Regulator, Matthew Elderfield.

"Banking crises tend to be costly affairs and the current Irish one is no exception," said Mr O'Leary.

His report said that Ireland was "not out of the woods" yet in relation to the Budget deficit, which is likely to stand at 11pc of GDP at the end of this year.

"The deficit would have been closer to 15pc of GDP this year, were it not for the changes that have taken place -- but at this level, the deficit is clearly too high," he commented.

Mr O'Leary also highlighted the economic and social problem of vacant housing. He said the vacancy rate across the country was 15pc, but there were major regional variations. Vacancies in the border area were running at 20pc, compared with just 11pc in Dublin.

"As a result, the housing market in the greater Dublin area will recover first and with an estimated 80pc of the price adjustment complete, this may not be too far off," he said.

Ireland's borrowing levels continue to rise, with debt-to-GDP due to hit 82pc by the end of next year. This does not include NAMA or all of the recent banking capitalisations.

Ireland's trade position and dependence on imports are also changing rapidly. At the end of 2009, Ireland had a 2.8pc current-account deficit, but this was forecast to be a 4.2pc surplus by the end of 2011.

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business