First, straight forward composition of liabilities as shown in the chart above.Next, the same expressed as percentages of total liabilities:
Finally, assumptions and calculations of total implicit subsidy from the Irish taxpayers/Exchequer to foreign liabilities holders:
Click on the chart to enlarge and see assumptions and calculations. Euro area residents accounted for €39.572 billion of our banks' liabilities or 6.42%, while non-Euro area residents accounted for €218.836 billion or 35.5% of total Ireland-6 liabilities at the time the Guarantee was issued. Thus, Euro area residents received an implicit subsidy from the Irish taxpayers to the tune of €5.5-6.7 billion over the time of the Guarantee - well in excess of the life-time cost of 1% reduction in the interest rate on our EU loans.Of course, this is a crude estimate based on official provided and expected default rates on assets held by the Irish banks - excluding Anglo and INBS. Which means it is likely to be an under-estimate. Expected losses at INBS and Anglo are multiples of those assumed for the Ireland-4 covered in the main PCARs. With Anglo & INBS thrown into the mix, subsidy to Euro area residents rises to ca €8 billion.
Another issue here is that I am using estimates through 2013 only. This means that, like the CBofI I am assuming (ad hoc) that post-2013 IRL-6 will be able to cover their own losses without resorting to taxpayers capital injections. This assumption, in my view, is absolutely unrealistic.
Finally, no allowance is made here for the Irish Government underwriting of the funding debts incurred by the banks vis-a-vis ECB and CBofI - the debts which, at least in the case of Anglo & INBS, should be treated as largely reckless lending to insolvent institutions and which should not be a liability of the taxpayers.
In the end, in my opinion, Irish Government had no business underwriting a Guarantee for any of the liabilities in excess of €130.2 billion of domestic deposits and €2.813 billion of its own deposits with the IRL-6.
Note - another issue not addressed in these estimates, but also likely to increase the implicit subsidy extended to Euro area residents is that Monetary & Financial Institutions deposits figures cover IRL-20 banks regulated here, which include a large number of deposits from Euro area banks that are within IRL-20.
In the end, in my opinion, Irish Government had no business underwriting a Guarantee for any of the liabilities in excess of €130.2 billion of domestic deposits and €2.813 billion of its own deposits with the IRL-6.
ReplyDelete...and this is why I am strongly supporting the process of establishing odious debts in Ireland.
http://dl.dropbox.com/u/4914840/odious_v1_3_final.pdf
Interesting stuff. These figures on the scale and nature of Irish bank liabilities, along with your commentaries over the past couple of years certainly prove what an enormous mistake it was. Still, I think in any analysis of the granting of the guarantee, its also worth remembering the mental universe in which the government was operating in Sept 2008. Back then, as far as they were concerned, the Irish economy, though faltering, was still the most successful and dynamic on earth, we were all rich, and this was clearly all the product of their singular genius and skill. Rather than being an explicit attempt to bail out foreign lenders, the guarantee was hubristically given as a quick, easy fix to a problem whose scale was never understood. It was a way to show a panicking world that we were still so much better and smarter than anyone else and virtually no consideration was given to the possibility that the guarantee would actually see taxpayers money given to private investors. Pretty sad really, when you think about it.
ReplyDeleteThis updated guarantee figure sums to an approximate €514bn. '€440bn' was the original guarantee figure as reported way back on Sept 2008.
ReplyDeleteIf or when convenient time-wise, can anyone answer these basic Sept 2008 questions?!
During March 2011, it was being reported on several occasions that the Irish taxpayer in 2008 had assumed liabilities to the extent of €265bn for the debts of the banks with the Sept 2008 guarantee.
Does anyone remember this figure?
Where did the €265bn figure come from?
Was the €265bn figure just a straightforward sum of the current taxpayer liabilities? (Y/N)
Is €265bn still valid today? (Y/N)
It seems to have disappeared off the radar = I can’t find it on google :(
When I looked on google for “€265bn”, all that I found was a lot of unrelated EFSF data.
ie. the ‘AAA’ rated EFSF €440bn sovereign guarantees vs. €265bn EFSF effective lending ratios equations. [(440*83.33%)*72.34%=265]
I realize that the EFSF package for Ireland is €17.7bn in total.
Thanks very much,
Robert