Governor's dilemma over banking crisis
Cantillon:The governor of the Central Bank would appear to have given AIB, Bank of Ireland and Permanent TSB a final warning over problem mortgage loans.
Or did he?
A somewhat exasperated Patrick Honohan told RTÉ over the weekend that the Central Bank was “close to being more directive” but almost in the same breath warned that “if we tell them what to do, they absolve themselves of responsibility”.
A case of dammed if we do and dammed if we don’t?
The governor’s dilemma highlights the multi-headed nature of the banking crisis hydra and its contribution to the current stalemate.
The problem is that resolute action in one area can make things worse in another.
Mortgage debt is a good example. Dealing in a fair, resolute and timely fashion with the thousands of people whose mortgages are no longer sustainable is an imperative from the perspective of the wider economic recovery.
From the perspective of the banks themselves it’s not such a good idea, because doing so will crystalise the losses on their books and thus eat into their capital.
The fact that this capital was provided by the taxpayer for just this purpose seems to be neither here nor there as far as the banks are concerned.
The reason that they can be so blasé is that the banks are well aware that the Government’s over-riding concern is a successful re-entry into the bond markets this year.
Strongly capitalised banks are a key part of that strategy as anyone looking to buy Irish bonds is cognisant that Ireland’s debt profile over the next few years will teeter on the edge of sustainability – defined roughly as a debt to GDP ratio of 120 per cent.
And these calculations do not allow for any significant extra borrowing to pump more capital into the banks should the current buffers not prove sufficient to absorb mortgage losses.
As a result the Government had a powerful incentive not to push the banks too hard.
The additional headroom on debt won through the promissory note deal changes this dynamic somewhat, and perhaps the governor’s exhortation to the banks is best seen as a coded message to that effect.
IBRC staff left twisting in the wind
It was never going to take too long for unforeseen consequences to spring out of the whole IBRC affair.
One of the first appears to be that there are now anomalies between the treatment of staff in the Republic, who lost their jobs with the IBRC last week, and those outside this jurisdiction, who, it appear, still have their jobs and access to a redundancy scheme that is more generous than the statutory terms offered to those in the Republic.
The liquidators have rehired most of the staff in the Republic, but on the basis of monthly rolling contracts.
The immediate consequence of this is that the workers’ union, the Irish Bank Officials’ Association, is going to raise the matter with Government. That could result in some sort of extra payment being made to former IBRC staff, or some other concession being made.
The staff are mainly middle management and below. They would have had little or nothing to do with the activities that led to the bank’s downfall. They do look like a group the Government forgot about in the middle of its efforts to secure a deal on the hated promissory notes.