Thursday, May 10, 2012

Bailed out Irish bank CEO says bailout money 'used much better elsewhere'

The Irish Times reports that the new CEO, Jeremy Masding, of one of Ireland's bailed out banks has written an apology

saying that the bank’s €4 billion Government bailout “could have been used much better elsewhere”.“... 
As a result of some of the bank’s decisions and actions, the Irish taxpayer has had to invest substantial funds when those funds could have been used much better elsewhere,” he writes....
Regular readers know that your humble blogger has been saying that modern banking systems are designed so that banks do not need bailouts.  With deposit guarantees and access to central bank funding, banks can continue to make loans to support the real economy and operate for years with negative book capital levels.

Bankers' bonuses need government bailouts, but not the banks themselves.

Here is confirmation of that fact.
The Government effectively nationalised Permanent TSB last year by injecting €2.7 billion following last year’s stress tests of the banks. A further €1.3 billion will be raised through the Government’s purchase of Irish Life. 
The troika and the Government approved a plan last month to carve a good bank out of Permanent TSB by moving about a third of its €34 billion in loans to an internal bad bank to be run down. 
Minister for Finance Michael Noonan has said that Permanent TSB has the potential to become a “third national bank” to compete with Bank of Ireland and AIB. 
One of the advantages of understanding that modern banks are designed not to require bailouts and requiring ultra transparency is that regulators can use the market to assess the long-term viability of the bank.

In the case of Permanent TSB, the market would probably have said it had the capacity to earn its way back to solvency and an appropriate book capital level.

As the CEO acknowledges, it would have been better for everyone if the bank had not received the bailout funds.

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