Wednesday, February 9, 2011

Irish Bailout Cost Debate Highlights Need for Current Asset-Level Data

As highlighted in an earlier post, the Irish government and its central bank finds itself debating the final cost of the bailout of the Irish banking system with an individual who has had access to current asset-level information at one of the banks nationalized by the government.

The Irish Independent observes, [emphasis added]
When Alan Dukes speaks about the banking crisis, there is every reason to listen. Not only is he a distinguished economist; he is a former minister for finance and, most importantly, he is chairman of Anglo Irish Bank. He has seen that particular can of worms from the inside
He said yesterday that there are more worms than in our worst nightmares. There could be a further €20bn to €40bn losses in the banking system, beyond those already covered, while €75bn in loans will be needed to fund a second NAMA for smaller loans. 
... Whether the final figure is the official €45bn forecast, or Mr Dukes' gloomier estimate, all our futures are at stake. Yet not only do we not know what is going on, because of the disgraceful veil of secrecy surrounding the bank rescues, we do not know, among all the posturing and bickering, what the next government is actually going to do about it.
This debate is interesting because it is entirely possible that because of his position as the chairman of Anglo Irish Bank, Mr. Dukes has better information than the Irish government and its central bank.

The possibility cannot be discounted given the fact that the Irish government has tried and claimed to have succeeded on at least a couple of occasions to identify all the 'bad assets' in the banking system and consolidate them in NAMA.

The difference in quality of information would also be consistent with what the Financial Crisis Inquiry Commission found in the US as shown on page 308 of its report,
Douglas Roeder, the OCC’s senior deputy comptroller for Large Bank Supervision from 2001 to 2010, said that the regulators were hampered by inadequate information from the banks but acknowledged that regulators did not do a good job of intervening at key points in the run-up to the crisis.
As has been discussed many times on this blog, the only way to get both the informed insider, the regulators and all market participants on the same page is if current asset-level information is disclosed on an observable event basis.  This is the data that Mr. Dukes sees in his position as bank chairman.

The bottom line:  with current asset-level data, everyone would then have the same data and would know what is going on.

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