IMF reveals scale of bank crisis

IRELAND IS undergoing the costliest banking crisis of any advanced economy since the Great Depression, according to a working paper prepared by two researchers within the International Monetary Fund.

Luc Laeven and Fabián Valencia said Ireland held “the undesirable position” of being the only country currently ranked among the 10 costliest banking crises since the 1970s, when measured in terms of fiscal cost, increases in public debt and output losses.

The State has pumped about €62 billion into the financial system since Ireland’s banking crisis began in 2008, the equivalent of about a quarter of the State’s gross domestic product last year.

According to the report, the fiscal cost (which includes bank recapitalisations and asset purchases) of Ireland’s banking crisis amounted to 41 per cent of GDP.

The authors said fiscal costs had reached such a high level in Ireland because of the relatively large size of the State’s banking system, which amounts to multiples of GDP.

The crisis, which is ongoing, has pushed Ireland’s debt up by 73 per cent of GDP, while the output loss amounts to 106 per cent of GDP.

Asset purchases by the National Asset Management Agency have involved a net outlay of 20.3 per cent of GDP.

Since December 2009, Nama has acquired loans with a face value of €74 billion from domestic financial institutions.

The report identified 147 banking crises, 13 of which were considered borderline events, over the period 1970 to 2011.

The authors found that monetary and fiscal policies were used more extensively during banking crises in advanced economies than in emerging and developing countries.

They also found that financial crises were most likely to occur in the month of September. – (Additional reporting: Bloomberg)