Instead of being allowed to fail, Postbank should have been part of a sensible strategy of community-based banks, writes FINTAN O'TOOLE
REMIND ME again: why, exactly, are we shovelling far more money into Anglo Irish Bank than will be saved by all the cutbacks put together?
Oh, I remember: we cannot let banks go under.
Brian Lenihan explained to the Dáil in January 2009 that “as a country, we cannot afford to have the message going out that we will let a bank fail.”
In June 2009, when he was extending the bank guarantee, he repeated the message: “the fundamental question that arises in connection with the guarantee concerns the fact that the Government decided it could not let a bank fail”.
This is apparently an article of faith. Fianna Fáil and the Greens decided that no Irish bank, including zombie institutions like Anglo and Nationwide, would be allowed to go to the wall. Having made that decision, everything else became inevitable.
We will do literally anything that is necessary to maintain the fiction that the zombies are productive members of the community.
But hang on a minute. Yesterday, Postbank, jointly owned by An Post and BNP Paribas, stopped taking new business. It will close by the end of the year. Its name would suggest that Postbank is actually a bank, but this must be an illusion.
If it were a bank, Postbank would not be allowed to fail. And Brian Lenihan’s reaction to its closure was merely to say that he is “disappointed [his favourite word] but not surprised”.
Why does the closure of Postbank get a c’est la vie shrug of the shoulders while the closure of Anglo is so unthinkable that at least €30 billion of public money is being used to keep it, if not actually alive, then apparently undead?
The answer Brian Lenihan would give is that Anglo is of “systemic importance” to the Irish economy, while Postbank is not.
Let’s consider this proposition. Postbank has deposits of €450 million and 170,000 customers. It has 70,000 savings and 35,000 current accounts, 90,000 insurance policy holders and 10,000 credit-card customers. It does what banks used to do – provide financial services for ordinary people in their own communities.
Because it operates through a thousand post offices, it is particularly important in towns, villages and working-class urban areas that have long since been abandoned by the main banks. More importantly, in any sane approach to the banking collapse, Postbank would have been an important part of a new strategy of creating sensible, community-based banks for individuals and small businesses.
But none of this is of systemic importance to the economy. To achieve that enviable status and become immortal, Postbank would have had to do certain things. It would have needed a chief executive who was on first-name terms with the taoiseach and who delivered regular lectures to the nation on the evils of social welfare and regulation.
It would have had to plead with every gambler and hustler to please, please take a few hundred million more in loans for another fantasy project. It would have had to bamboozle its investors by cooking the books and lending chosen customers the money to buy its own shares. If it had concentrated on these goals instead of getting stuck in the pathetically old-fashioned rut of helping ordinary people manage money, it would have been systemically important.
Meanwhile, the policy of piping public money into the septic tank that is Anglo becomes steadily more demented. It is worth recalling what the Dáil and the Irish people were told by Brian Lenihan in January 2009 when he set this policy in motion.
“The position,” he said, “is that the current loan book of Anglo Irish Bank remunerates the deposits. In other words, there is sufficient income derived from the loan book to pay for the operation of the bank and to pay for the deposits at the bank. This is a fundamental and important point. Much of the public debate has suggested that the bank is not in a solvent position. The bank is solvent and it is now coming into State ownership.”
The claim that Anglo was solvent in January 2009 was ludicrous. Anglo is about to post losses of up to €12 billion – the largest in Irish corporate history. Brian Lenihan also assured the Dáil that the total recapitalisation requirement of Anglo was €4 billion and that the State would provide just €1.5 billion in the short term. That €1.5 billion became €3.9 billion and is now heading for €10 billion. And the €28 billion in loans that Anglo was to dump on Nama is now being upped to around €35 billion. The hole keeps getting bigger and the Government keeps trying to fill it with gold bars.
We were told that the Government couldn’t let a bank fail. We now know that this was untrue. We were told that the taxpayers’ liability to Anglo was limited. This was untrue. And we were told that this whole policy would create credit for Irish businesses and save jobs. The opposite has happened. Yet rather than admit failure, the Government, like an increasingly desperate gambler, throws good money after bad.