22/4/2013: Who funds growth in Europe?..

There are charts and then there are Charts. One example of the latter is via IMF CR1371

The above shows a number of really interesting differences between the euro area and the US, as well as within euro area:

• Look at the share of overall funding accruing to the traditional (deposits) banks in the US (tiny) and the euro area (massive) - debt is the preferred form of funding for Europe
• Look at the share of equity in the US funding and in euro area, ex-Luxembourg - equity is not a preferred way for funding growth in Europe.
• Why the above matter? Simply put, debt - especially banks debt - is not challenging existent ownership of the firm raising funding. Which means that patriarchal structures of family-owned firms, with their inefficient and paternalistic hiring and promotions and management systems can be sustained more easily in the case of debt-funded firms than in the case of equity funded ones.
• Look at the role played in the US by the credit supplied by 'other financial institutions' - non-banks. Again, these would be more 'activist'-styled funding streams exerting more pressure on management and ownership structures.

What about Ireland? Look at the composition of funding sources in the country:

1. Strong reliance on corporate bonds markets is probably reflective of three factors: (a) concentrated loans issued during the building boom and related to construction, development & investment in land remain the legacy of the boom and rely on collateralized bonds issuance, (b) banks funding via collateralization, (c) concentrated nature of Irish listed plcs, (d) massive M&A spree undertaken by Irish plcs and larger private companies on foot of cheap leverage available in the 2000-2007 period, etc. The volume of bonds might be large, but their quality is most likely lower due to the above points.
2. Strong - actually second strongest in the sample after Cyprus - reliance on bank lending to fund economy.
3. Weak, extremely thin equity cushion. 

Now, keep in mind: equity is the best, most stable and most suitable for absorbing crisis impact form of funding.

12/1/2013: Banks lending to private sector - Nov 2012

For much of the discussion about "Ireland is not [insert a euro 'peripheral' country name here]", here are comparatives in terms of banks lending to private sector in November. Predictably and as mentioned earlier on the blog, our lending is still contracting. On the 'positive' side, it is contracting less in Greece, Spain and Portugal for non-financial corporates, and less than in Greece, but more than in Spain and Portugal for households.

For the sake of my own physical and mental health, I am not going to give you a judgement of what this means. Draw your own conclusions.

Note: I just realised I forgot to link to the source on this.

5/11/2012: Bank credit to SMEs - demand side

My paper with Javier Sánchez Vidal, Ciaran Mac an Bhaird and Brian M. Lucey "What Determines the Decision to Apply for Credit? Evidence for Eurozone SMEs" is available here.