Tuesday, February 2, 2010

Economics 02/02/2010: NTMA and the banks

Per RTE Business (here which so far cannot be confirmed by any official material published on the NTMA website):

The NTMA "will now hold talks on capital needs with the institutions covered by the NAMA legislation. Among the other responsibilities it is assuming, the NTMA will also hold discussions with financial institutions on their realignment or restructuring within the banking sector. It will manage the Minister for Finance's shareholding in the banks, advise on banking matters, and crisis prevention, management and resolution."

Here are the interesting aspects of this change that raise a multitude of questions:
  1. How will NTMA manage the conflict of interest between its own objectives per above and Nama objectives?
  2. How will the potential conflicts of interest be disclosed to the markets?
  3. What does it mean that NTMA will hold discussions with financial institutions? Will these discussions be subject to usual market disclosure rules or will they risk constituting a price fixing behavior?
  4. How can NTMA's direct interference with the banks be compatible with the rights of other shareholders?
  5. How will NTMA advising on banking matters etc play out vis-a-vis the roles of the Financial Regulator and the Central Bank?
  6. What does 'crisis prevention, management and resolution' refer to? Systemic banking crises? Specific institutions crisis? Will it also include industrial relations crises? How will this process be carried out while respecting the general rules of disclosure and non-collusion with the market?
  7. With massive firepower and own objectives, how NTMA will assure that the rights and interests of minority shareholders in the banks are protected?
In effect - even the mere raising of these questions implies that there is a risk that NTMA will be engaged in interfering with the markets for shares and debt in Irish banks in markets-distorting fashion. Amazingly we have no details as to how the Government and NTMA/Nama plan to avoid these problems.

There is another issue at hand here. If, at least in theory, DofF is a publicly accountable institution, NTMA by its statues is a secret entity (with extremely secretive culture to boot). What transparency can we, banks customers, have and what assurance can we hold that NTMA will not act to undermine or violate our rights, the safety of our deposits or our ability to access these?

Lastly, I am rather surprised at the timing of this change. In my view, this statement coming before Nama begins transfers of loans suggests that the Government is preparing for taking up a majority stake in the banks - a majority stake that will require full state control of these institutions management and activities.

So is this statement a precursor to full nationalization of the banks?


patrick1978 said...

Constantin well done on your predictions about NAMA recapitalization figures and for your prediction on Prime Time that AIB and BOI would be nationalised in 2010. God help the poor people who listened to Pramit Ghose about buying bank shares at 3 EURO

Anonymous said...

The reverse of the law of holes - when in a hole keep digging. I am appalled that consideration on the restructuring of Irish banking will take place in secre