Are savings in Irish banks safe? The super-soothers were out in force all week. Nobody spins contrived confidence like stressed Central Bankers or politicians in a banking crisis. Tediously, they almost always say exactly the same thing.
After the collapse of Silicon Valley Bank (SVB) 10 days ago, another US bank, Signature, bit the dust last Sunday.
On Monday, Joe Biden was the first super-soother to surface. The US president comforted Americans, insisting “the banking system is safe” and that the two troubled US banks’ depositors would be fully protected.
For good measure, he decreed the errant management would be fired. Joe meant business. American depositors could sleep easy.
Biden’s efforts had limited success. Anxious US investment gurus instantly targeted other weak links in the banking sector. A third bank, the First Republic, was rescued by its rivals. US bank shares sank.
The nervousness spread to Europe. On Wednesday, the once-mighty Credit Suisse bank hit the buffers. The scandal-ridden bank’s biggest shareholder, the Saudi National Bank, said it would not increase its current 10pc holding in the Swiss giant.
Such public lack of support spooked a jittery market. Credit Suisse shares sank 31pc. Switzerland’s central bank rode to the rescue.
Ireland’s politicians, spread around the world on St Patrick’s Day jaunts, looked on, terrified.
Bewildered citizens at home feared we were heading back to 2008, to the insolvency of our major banks, straight into the familiar arms of the dreaded IMF. Battered savers shuddered, wondering whether their already inflation-ravaged savings were safe.
Ireland is haunted by the ghosts of past bank crises. Our wounds are too recent, too raw. Last Wednesday, Leo Varadkar super-soothed from America. The Irish Times headline “Irish banks are stable says Taoiseach” exposed his helplessness. Leo parroted the same sentiments as Biden.
He added the usual inanities about how he was “monitoring” banking developments “very closely”.
And on Thursday, the European Central Bank ( ECB) explained its reasons for another risky interest rate hike. It knew higher interest rates could put small enterprises out of business, burdening already fragile banks with more bad debts, but the ECB was determined to curb Enemy No 1: inflation.
The ECB said European banks were “resilient”. Ireland’s survivors of the 2008 bank crash will recall the last man who confidently asserted that Ireland’s banks were “resilient”. It was none other than Patrick Neary, the likeable — but totally out of his depth — financial regulator.
Relax. We are not in a crisis similar to 2008. Depositors should not panic or withdraw their savings. Although Ireland’s bankers have never been cured of their fatal greed disease, the banks themselves are in a far better state today than 15 years ago.
No bank is 100pc safe. Punters forget how bankers are hard-nosed, silver-tongued gamblers in smart suits. SVB’s failure was due to a banker’s gamble.
SVB, an important lender to tech companies, was overwhelmed by deposits from cash-rich start-up outfits. SVB placed a big bet, sinking its depositors’ funds into long-dated US government bonds.
As interest rate rises persisted, the value of those bonds tanked. When the tech businesses slowed down recently, the owners needed to withdraw deposits to pay wages and other overheads.
Unfortunately, the value of the bonds had crumbled. SVB tried to arrange emergency lifelines to raise the cash. Rumours of problems leaked. There was a run on the bank. It closed. The bankers’ gamble on bonds had failed.
Last weekend, Europe’s largest lender, HSBC, took a different gamble. It bought SVB’s UK arm for £1 (€1.14). SVB’s UK arm was facing a terminal run on deposits, queues at the doors if it opened on Monday.
British prime minister Rishi Sunak and chancellor Jeremy Hunt brokered the deal. HSBC has gambled there is no unexploded bomb lurking in the bank’s books. The purchase was far from traditional banking.
Ireland’s suicidal banking activities in 2008 were based on an insane property wager. It ended in Armageddon.
Today, Ireland’s banks are more dependent than others on conventional profits arising from paying depositors a pittance and lending their hard-earned savings at current crippling interest rates.
Hardly philanthropists, bankers are benefiting from their mortgage crucifixions, funded by their starvation of savers.
Powerless citizens’ nest eggs are being exploited, but the deposits themselves are not in obvious danger. Recklessness has retreated from Irish banking; ruthlessness remains.
After the 2008 collapse Ireland was forced to introduce strict banking rules. The banking regime here has stood steadfastly regulated while the US and others have loosened the straitjacket.
Banking lobbyists had persuaded the US authorities to ease the rules. Happily, Ireland has not yet succumbed to their unsavoury charm. In Ireland, bankers are not allowed to risk short-term savings in long-term government bonds.
There are other differences. Ireland’s biggest bank is majority state-owned. It would be politically unacceptable for AIB to indulge in the excesses of SVB or Credit Suisse.
We should not be smug about our escape this time round when we were not in the centre of the European or US banking turmoil.
However, we are integrated in a global banking system. Our bank shares tumbled with overseas stock market reverses last week. Our interest rates rose 0.5pc with the rest of Europe.
We should ostracise the bankers’ lobbyists whose machinations have done so much damage elsewhere. We should end the duopoly of AIB and Bank of Ireland, a banking model that will inevitably lead to them becoming powerful untouchables, entitled to abuse consumers and breach the rules. In the meantime, depositors should not panic.
Shane Ross is author of ‘The Bankers: How the Banks Brought Ireland to its Knees’