THE PROPOSED National Asset Management Agency (Nama) will fail in its bid to create healthy banks even if it works exactly as the Department of Finance anticipates, UCD economist Morgan Kelly told the economic conference in Kenmare, Co Kerry, this weekend.
Mr Kelly said that even if the default rate on the €77 billion in loans being transferred to Nama was 20 per cent or less and the long-term value of the assets was 70 per cent of the size of the loans, Nama would not succeed.
“Nama has turned from a recapitalisation into a partial and inadequate liquidity support,” he said, speaking at the Dublin Economic Workshop’s annual conference.
“Nama was supposed to be revitalising the banking system. We were putting [in] a lot of money, admittedly, but the banks were supposed to be able to stand on their own after a couple of years,” he said.
“These guys would be fit as fleas; they’d be off the ventilators. But even if Nama goes through perfectly, the banks are going to have huge outstanding borrowings which they really have no chance of repaying on their own.”
The banks would need ongoing State support and “forbearance” from the European Central Bank (ECB), he said. But ECB liquidity support would not last forever, he cautioned.
“At the moment it seems like there’s this magical ATM in Frankfurt, we go put in our code, they say ‘Top of the morning to you Paddy, here you go’ – well, that is not going to last. That is not going to be the case next year.”
It was likely that the Government’s planned “bad bank” would not run “like clockwork”, as the assumptions in the draft business plan for Nama, which was published on Wednesday, were all “at the extreme upper tail of optimism”, Mr Kelly said.
“When you have every assumption like that, you no longer have a forecast – you have a fantasy.”
Former banker Pat Ryan, meanwhile, took “serious exception” to what he felt was “the suggestion that the banks are somehow subverting the State”.
Also speaking in Kenmare on Saturday, Pat Farrell, the chief executive of the Irish Banking Federation (IBF), apologised on behalf of the banking system for its role in the economic crisis.
“We built opacity and complexity into the banking model, which, truth be told, defied understanding,” Mr Farrell said.
“For these omissions and failures, I unreservedly apologise,” he said, adding that it would take a long time for banks to regain the trust of their customers.
Mr Farrell added that the supervision of banks was weakened by the setting up of the Financial Regulator in 2004, because under its structure, too great an emphasis was placed on giving personal finance advice to consumers, while monitoring the health of the banks’ balance sheets was too low on its agenda.
“When push came to shove at the height of the financial crisis, what were people worried about? It was ‘Is my money safe’, not ‘I don’t know what a tracker mortgage is’,” he said, referring to a slogan from a Financial Regulator television advertisement.
