Save with Ireland

The BBC’s personal finance department says:

“The emergency decision by the Irish government to guarantee the safety of all deposits in six of its main savings institutions for two years may give UK savers a great opportunity. If you want somewhere secure to put your cash during the current financial crisis, then opening an account with any of the six looks like a very good idea.”

So far the gamble looks like paying off in the short term. What I took to be “a pebble in the stream” may become a veritable flood. Pressure is mounting on the British and other European governments to do something similar. Gordon Brown is repeating the mantra that he’ll “ do what it takes”and is increasing the savings guarantee from 35k to 50k but this may not be enough. He’s plainly reluctant to make a move which comes within a hair’s breadth from nationalising of all British banks. That’s Tuesday evening’s position anyway. Tomorrow is a new day.

  • Comrade Stalin

    It’s actually a bit of reverse psychology this.

    By guaranteeing deposits and encouraging people to put their money in banks in Ireland, the liquidity position of the banks improves, significantly reducing the likelihood of the Irish government having to actually bail anyone out.

    The other European governments need to do this as well.

  • dewi

    Comrade – I just thank the Lord I didn’t take your investment advice – indeed I’m a little worried about Lloyds.

  • Eoin

    CS is correct. The Irish gov’t have stolen a march on their European rivals and will see their coffers swell with deposits from savers looking for a safe port in a storm.

    Whether they should have done this is another question.

  • John East Belfast

    As I said on an earlier thread this helps with Bank Liquidity but does nothing to shore up Bank Capital in the short term at least.

    A lot of the bad loans on Irish banks have in my opinion not been disclosed – that is what ultimately drove on the short sellers against Lehman.

    Once these start to go bad then they will murder some of the capital bases of these banks and the ROI Govt will pick up the bill.

    It is interesting that the Basis points on Credit Default Swaps on Irish Govt Bonds doubled today to an all time high – the market is concerned about an Irish Govt default as a result of this move.

    In today’s climate it is not crazy to suggest this could bankrupt the Irish tax payer.

  • The Raven

    Question from the financially uninformed, and it’s not really related to the thread, but:

    Let’s say there are bail-outs and guarantees ahoy for duff banks.

    Can we assume that the same level of leniency will be shown to customers who find themselves in diffs in terms of paying their mortgages?

    Will all this benevolence cascade down to the end-user…?

  • Pounder

    Bottom line for me is this. If I have my bank account and my slush funds moved to Bank of Ireland rather than a British bank is my money safer?

  • picador

    If providing stability in the banking sector was as simple as guaranteeing all deposits why have not all governments taken this step which has the benefit of involving no immediate cost to the tax-payer? Is it perhaps because it isn’t this simple?

  • Matt

    JEB,
    irish cds doubled to 50 bps, same as Italy,Spain etc…Ireland could not bust the bundesbank,sori the ECB…all the loans are gteed by the irish govt…therefore they are all eligible for cash with the ecb…therefore they cant go bust..the euro is now lookin inspired….just look at poor iceland,now that cud go bust!…btw Lisbon will politically keep the commission onside to approve this action.
    Re recaping the bks…i expect all international analysts to now recommend irish bks,+ when prices rise,the rights issues will flow!
    End result..Get out of jail free card…this was brave and inspired by the irish govt and leaves everyone else lookin flatfooted!

  • John East Belfast

    Matt

    The as yet unquantifiable here is what are the extent of Irish Bank Bad Loans – ie the kind that was provided to buy land @ £1m an acre and is now worth agricultural value at £5k to £10k per acre.

    Will two years be enough for the Banks to roll up the interest that their borrowers cant make and hopefully get an opportunity to recapitalise with profits on good loans plus rights issues as you infer.

    How many Billion Euro bad loans are there on the books of Irish Banks and do the aforesaid banks have a sufficient capital base to cover them if even 10% went bad ? Have a look at the Balance Sheets of some of the names that saw up to a 50% collapse in their share price on Monday and you will see they dont.

    On Monday the stock market was exiting Irish banks and by Tuesday so would depositiers if the Irish Govt hadnt taken this desperate move. This was not a master stroke or a clever move it was a move to stop a panic.
    If short selling hadnt been banned you would have seen a couple of these banks gone already.

    I dont know where you are coming from in thinking the other European countries will help out the Irish Govt if the latter’s guarantee is called upon – the only place they will be able to look is to the Irish Taxpayer and an increased national debt.

    I havent gone to the trouble of looking at the Loans of all Irish Banks but if Deposits are Eur 500b then Loans must be at least Eur 1.5trillion. The Irish Govt is effectively guaranteeing the proportion of the Bad Loans among these that the Capital base of the Banks cant cover themselves.

    The ROI Govt was caught between a rock and a hard place last night – either take this risky move or watch the Irish Banking system go down the toilet today as Depositers withdrew their cash and the Banks were unable to make up the difference in the wholesale banking markets.

    Only time will tell if this gamble will see them through or if they will have undone everything the Celtic Tiger has achieved in the last 15 years.

    Let’s hope the Congress reach a deal this week

  • slug

    John, do you think that people with savings in a UK institution substantially over the £50k guarantee (for UK accounts) are at risk and should move their savings to Ireland, say the Anglo Irish bank?

  • Wilde Rover

    And the hammer, it hits Slugger the hardest.

  • niall

    slug,

    If you wanta safe haven in the storm may I suggest Northern Rock. I think all deposits there are 100% guaranteed because it is owned by the govt.

    Apparently this fact can’t be advertised.

    I’d rather have the UK govt than Biffo’s lot as my guarantee.

  • John East Belfast

    slug

    I am with Nial

  • slug

    Thanks guys.

  • picador

    The rerun of the Lisbon referendum (if it happens) will be very interesting.

  • Dave

    Picador, hopefully folks will remember who set the low interest rates in Ireland that precipitated house price inflation and the manic lending to finance it with the Irish banks now exposed to risky property-related loans. It was the EU; more specifically, the European Central Bank. Sovereignty over Irish monetary policy was transferred from the Irish Central Bank to the European Central Bank when FF put Ireland into the Eurozone.

    Interest rates in Ireland should have been set at 6% by the Irish Central Bank under the Taylor Rule to meet the needs and underlining dynamics of the Irish economy during the period when they were set at 2% by the ECB under their risible ‘one-size-fits-all’ policy. If Ireland had retained sovereignty over its monetary policy then this would be all academic now. Instead, we swapped a solid growth economy for an economy built on rapid house price inflation fuelled by cheap credit proffered by the European Central Bank.

  • Comrade Stalin

    Dave me old china, I don’t see you advocating a different interest rate for each of the individual states in the US ? Shouldn’t Northern Ireland get a different rate from the Bank of England due to it’s own special interest rate circumstances ?

  • Dave

    “Dave me old china, I don’t see you advocating a different interest rate for each of the individual states in the US ?”

    Probably because its a single, sovereign economy. Do try to keep up. It wasn’t even moving that fast, was it?

  • Comrade Stalin

    Probably because its a single, sovereign economy.

    What’s that got to do with it ? It suffers from regional issues with economic performance in the same way that different parts of the Eurozone do.

  • George

    It is interesting that the Basis points on Credit Default Swaps on Irish Govt Bonds doubled today to an all time high – the market is concerned about an Irish Govt default as a result of this move.

    May be but don’t forget that is coming from a low figure as Ireland has the second lowest national debt in the EU and it did have the effect of AIB’s CDS figure immediately dropping 215 points to 135. The European bank average is 119 so AIB is back where it needs to be.

    And as Ireland is in the eurozone it doesn’t have to worry about a run on the national currency. Some may say if it had its own currency it wouldn’t be here in the first place but that’s another thing.

    The question is was it better for the Irish government to do something to protect the country’s banks now on its own or hope that the US or EU would act.

    We don’t know how this whole crisis will play out but this move has laid down a marker that the Irish State will do all in its power (the issue of sovereignty and how much power it has left is another discussion) to protect the banking sector.

    As for Northern Rock, that piece of business cost the British taxpayer around 40 billion euros while Bradford and Bingley has opened them up to further liabilities of 200 billion euros. And there could be more to come.

    Every country is trying its own method, we’ll know soon enough whether the British “nationalise” or the Irish “state guarantee” model is more appropriate.

  • George

    John East Belfast,
    that post above was directed to you. Also, you talk about the CDS jumping but after the move Fitch have affirmed Ireland’s Long-term foreign and local currency ratings at AAA because they think Ireland’s low debt means it can do this and they believe the measure will stabilise the financial system and stave off a deeper recession.

  • Dave

    Comrade Stalin, if you really believe that monetary policies can be plucked randomly from a hat and don’t need to address the relevant dynamics of the economy that they are supposed to be formulated to address, then I’m relieved that you live north of the border and can’t vote in the south. By the way, if your doctor ever shoves his fist up your ass and then gives you medication for ear infection, don’t worry about his unorthodox methods: he doesn’t need to properly examine you in order to diagnose what ails you and prescribe an appropriate treatment.

  • borderline

    Apart from dodgy property deals, another thing we have imported from America that we could do without, is wannabe Yank arseholes using the word ass for arse.

  • Dave

    Does my use of the word ‘ass’ really bother you that much, you neurotic little man? 😉

  • Greagoir O’ Frainclin

    Staunch Unionist folk, support the Bank of England, support British banks, do you have any principles at all?

    Irish banks are part of the popish plot to take over NI and Britain. Do not trust Irish economists! They work for the pope! It is all a popish plot, reach for your bibles and pray…for the end of the world is nigh!

    Aaaaaggggggggggghhhhhhh!

    Ahem!

    John East Belfast – you sound as if you have a financial head on you. Do you work in finance? …do you work in the IFSC for that matter? ….else you are shrewd with your few bob!

  • Greagoir O’ Frainclin

    yes indeed Unionist folk …invest in Northern Rock!

    Your savings will be well safeguarded,….. as the English government shows concern about the Irish governments guarentee.

    ‘Fucking Paddies’… they say under their breath!

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