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I have good reason to believe, independent of media reports, that the choice was between this or nationalising one or more of the six banks.
by Colman (colman at eurotrib.com) on Wed Oct 1st, 2008 at 11:08:38 AM EST
[ Parent ]
Okay, in that case
  1. the government would have gotten equity in the banks it bails out;
  2. moronic bank executives would be out of a job and couldn't go out using the bailout for competitive advantage, creating a political problem for their government;
If the guarantee is worth €10bn as Pierre suggested, why didn't the Government acquire that much new equity in the banks? By how much has the market capitlisation of the 6 Irish banks increased since the guarantee was announced?

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
by Migeru (migeru at eurotrib dot com) on Wed Oct 1st, 2008 at 11:39:31 AM EST
[ Parent ]
Yes, I know. Unfortunately(?), nationalising banks is not seen as acceptable. We had an opposition spokesman stating that it was never the correct thing to do.

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.

by Colman (colman at eurotrib.com) on Wed Oct 1st, 2008 at 11:41:37 AM EST
[ Parent ]
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

by Migeru (migeru at eurotrib dot com) on Wed Oct 1st, 2008 at 11:43:28 AM EST
[ Parent ]
Perhaps.
by Colman (colman at eurotrib.com) on Wed Oct 1st, 2008 at 11:44:12 AM EST
[ Parent ]
Depends what happens globally.
by Colman (colman at eurotrib.com) on Wed Oct 1st, 2008 at 11:44:55 AM EST
[ Parent ]
nationalising the lot, which isn't obviously better than the current plan.

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

by Migeru (migeru at eurotrib dot com) on Wed Oct 1st, 2008 at 04:10:41 PM EST
[ Parent ]
Mig:
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.

by Cat on Thu Oct 2nd, 2008 at 08:31:08 AM EST
[ Parent ]
Each EU country has its own guarantee scheme.
Until Northern Rock, the UK was probably the most lousy of all: only 2k£ fully covered, then a 10% haircut up to 30k£, then barenaked.

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

by Pierre on Thu Oct 2nd, 2008 at 08:42:59 AM EST
[ Parent ]
Irish Times:

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.

by Cat on Thu Oct 2nd, 2008 at 09:26:16 AM EST
[ Parent ]
The ratio of deposits (retail plus commercial) to debt is not given.

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

by Migeru (migeru at eurotrib dot com) on Thu Oct 2nd, 2008 at 11:35:36 AM EST
[ Parent ]
The market as a whole has recovered c. 9% of the 13% in lost on Friday.  I don't know where the €10B figure comes from.  The deposits as a whole subject to guarantee are worth c. €400B - .,e. a multiple of Ireland's GDP - so I am not even clear how credible the guarantee is.   The Government claims it will charge the Banks "a commercial rate" for the deposit insurance it is providing, but precisely how that will work, no one seems to know.

Vote McCain for war without gain
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Oct 1st, 2008 at 11:46:08 AM EST
[ Parent ]
The Government claims it will charge the Banks "a commercial rate" for the deposit insurance it is providing, but precisely how that will work, no one seems to know.

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

by Migeru (migeru at eurotrib dot com) on Wed Oct 1st, 2008 at 11:48:37 AM EST
[ Parent ]
How reliable are they as a pricing mechanism? Aren't they part of a market that has clearly failed?
by Colman (colman at eurotrib.com) on Wed Oct 1st, 2008 at 11:51:00 AM EST
[ Parent ]
They're not reliable anymore.

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

by Pierre on Wed Oct 1st, 2008 at 12:10:16 PM EST
[ Parent ]
They're a proxy for default probability - given the experience of the past 14 months, that's a part of the market I don't see as obviously failed.

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
by Migeru (migeru at eurotrib dot com) on Wed Oct 1st, 2008 at 12:11:20 PM EST
[ Parent ]
I'm guessing the commercial rate is whatever the lowest rate the the EU competition authorities will allow them to get away with is.
by Colman (colman at eurotrib.com) on Wed Oct 1st, 2008 at 11:50:09 AM EST
[ Parent ]
Banks gain on guarantee and hopes of US deal - The Irish Times - Wed, Oct 01, 2008

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.



Vote McCain for war without gain
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Oct 1st, 2008 at 11:51:21 AM EST
[ Parent ]

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