Don’t rule out nationalising banks: OECD
The Government shouldn’t rule out temporarily nationalising the country’s banks as they may require more capital to cushion against surging bad debts, the Organisation for Economic Cooperation and Development said.
The Government is setting up the so-called bad bank that will buy €77bn of property loans from banks at a discount of 30pc. Losses on those assets may leave the lenders needing extra capital.
“Further recapitalisation may be necessary as assets are being purchased below book value,” the Paris-based OECD said in a report today. “Temporary nationalisation would have a number of drawbacks, but it should not be ruled out altogether.”
The Government has already guaranteed all deposits at banks and some of their debts, pumped €7bn into Allied Irish Banks and Bank of Ireland and seized Anglo Irish Bank.
“Substantial” banking losses are likely to be met by the taxpayer and nationalisation should only be undertaken with the “utmost reluctance,” the OECD said.
The organisation also said that any form of public ownership “should be temporary and transparent,” and that a subsequent exit plan “should aim to maximise the return to the taxpayer.”
Gross domestic product may shrink 7.5pc this year and 2.4pc in 2010, the OECD said in its report. It forecast a budget deficit of 12.2pc of GDP in 2009 and 11.3pc next year.
The Government is aiming to reduce the deficit to the European Union limit of 3pc by 2013.