THere's also the danger that they'd cause a chain reaction and end up nationalising the lot, which isn't obviously better than the current plan.
Just wait... A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
I think it is because if they nationalised them, they might not have to guarantee the debt on top of the deposits. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
if they nationalised them, they might not have to guarantee the debt on top of the deposits
I agree, ironically; if the government "nationalizes" the 6 "national" (charter, i.e. licensed) banks, meaning purchase equity or bonds, the government will in deed own the banks' debts. The government need not "guarantee"; it is obligated to repay the banks' debts. In general, in legal terms, any "guarantee" otherwise is not executable.
Irish Times:
Tuesday's guarantee offered by the Irish government to its six national banks to safeguard €400 billion of deposits and bank debt
The ratio of deposits (retail plus commercial) to debt is not given. I assume there is a government sponsored agency that reports this aggregated data to the public.
The correspondent implies two distinct insurance mechanisms. One guarantees the banks' demand depositors in the fashion of the FDIC; premiums paid by banks may be calculated to some ratio of non-borrowed level of funds. The second guarantees the banks' debts, their borrowed funds, in the fashion of the Bailout Bill or commercial, monoline insurance of third-party transactions.
It is the latter case rather than the former, I imagine from which arises claims of competition, especially "first mover" advantage across the pond. As you know, all depositors, foreign and domestic, to US FDIC-insured banks are protected, so to speak.
I'm embarrassed to say that I am surprised that EU banks don't offer depositors insurance. As for debt (bond) insurance, is it possible the government merely means to imitate the US Bailout Bill by offering an extra-layer of protection and incentive to firms to preserve their deposits in Ireland? Diversity is the key to economic and political evolution.
Most EMU countries have a simple cap at 20k€.
France has a cap at 70k€, I think it's the highest in the EMU. It doesn't need changing I think (and actually sarko has only done talktalktalk, no actual legislation or decree has passed that would raise the cap). Pierre
Britain still does not have a comprehensive system of deposit insurance for retail depositors, let alone some temporary guarantee for wholesale depositors as announced yesterday in Ireland
So this PR is a truly about legitimizing insurance for brokered deposits and €400B is estimated flow of money markets through these banks? Diversity is the key to economic and political evolution.
I think it's about 2:1. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
CDS Spreads? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
This market is broken, with only near-bankrupt firms selling protection (backed by over-collateralization from their remaining assets, performing or not), to other near-bankrupt firms seeking regulatory arbitrage (protect your risk-weighted assets from a downgrade of your asset, by having it protected by someone who, you hope, will be downgraded only somewhat later).
But still, distressed banks including my own have spreads, for what they're worth, of a few % of protected amount. This spread is a fee that the buyer of protection has to pay each year. Hence a "market" price of 10 B€/year. Over 5% of Irish GDP, which is now closer to 200 B€ actually according to Wikipedia. Pierre
Although the gains and volumes were not as high as yesterday, Irish banks stocks enjoyed strong gains by mid-afternoon with Anglo Irish Bank adding 16.7 per cent to €4.48, bringing its shares back to levels held on September 22nd. Irish Life and Permanent was also higher, adding 72 cents to €5.35, a rise of 15.8 per cent. Bank of Ireland added 52 cents to €4.47, a rise of 13 per cent while AIB added 25 cents to €6.15, a rise of 4.2 per cent.
Although the gains and volumes were not as high as yesterday, Irish banks stocks enjoyed strong gains by mid-afternoon with Anglo Irish Bank adding 16.7 per cent to €4.48, bringing its shares back to levels held on September 22nd.
Irish Life and Permanent was also higher, adding 72 cents to €5.35, a rise of 15.8 per cent. Bank of Ireland added 52 cents to €4.47, a rise of 13 per cent while AIB added 25 cents to €6.15, a rise of 4.2 per cent.
