Wednesday 17 January 2018

'Quarter of banks wiped out in crisis' as banking collapses and mergers take toll

  • Rescue of the banks added €58.4bn to nation's gross debt

  • In Ireland the number of credit institutions has reduced by a fifth

  • In total €48.9bn of taxpayers' money was injected into Irish banks

European Central Bank HQ in Frankfurt – a new ECB report exposes the scale of bank closures
European Central Bank HQ in Frankfurt – a new ECB report exposes the scale of bank closures

Gretchen Friemann

One in four banks have disappeared from the eurozone since the onset of the financial crisis as banking collapses and a wave of mergers continue to radically reduce the sector's scale.

A new report by the European Central Bank exposes the rate of attrition. In Ireland the number of credit institutions has reduced by a fifth, helped by the decimation of Anglo Irish and Irish Nationwide as well as operational scale-backs from the likes of Danske and Rabo Bank.

The ECB's latest assessment of the region's financial services sector comes as the Central Bank of Ireland revealed the taxpayer-funded rescue of the banks added €58.4bn to the nation's gross debt at the end of last year. An economic letter drafted by economists Ronan Hickey, Linda Kane and Diarmaid Smyth, argued it is too early to gauge the "ultimate costs" of the bailout. But they noted the impact of the rescue on Ireland's financial health has been acute, with only Greece suffering from higher outstanding net liabilities at end-2016 due to support provided" to the financial services sector.

Recapitalisations account for the bulk of the costs.

In total, €48.9bn of taxpayers' money was injected into Irish banks - lower than the frequently reported €64bn. The economists stated this was because some of these payments were classified as "financial transactions".

They are excluded as these exchanges of financial assets, such as cash for shares (or vice versa) are expected to produce a profit for the State, as evidenced by the recent Government's €3.4bn share sale in AIB.

This cash benefits the Exchequer, but is excluded from the general Government position. The Central Bank economists concluded it is too early to quantify the final toll of the bank bail-out, arguing the costs "may end up being higher or lower depending on how various banking positions are unwound and the cumulative cost of servicing the related borrowing."

While the rescue of the banks during the crash continues to represent a considerable burden to the State, the ECB report shows the number of credit institutions operating in Ireland has declined while the importance of non-bank players has increased. The total value of assets held by the region's domestic banks hit €24.2trn at the end of last year, a fractional increase on 2015 but still 14pc down on 2008.

Irish Independent

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