# Aib /boi still undercapitalized ?



## capall (21 Nov 2010)

Can someone explain this to me
The current situation was precipitated by the international markets not being willing to lend Irish banks
This is because they are viewed as high risk and  undercapitalised

We have taken all property loans over 5 million I think out of banks into nam a.
Based on the value for these paid by nam a, the regulator, gov, ecb etc worked out what the banks then needed to be adequately capitalised. This was done.
So how are they now seriously undercapitalised again ?

So are we saying everything else on the banks loan books is trash? Ordinary business lending , obviously there will be a problem with home mortgages but the whole country is not going to default on their mortgages

Where has the regulator been all week , has he said anything


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## Chris (22 Nov 2010)

There has been a huge flight of deposits, especially corporate ones, and I wouldn't blame anybody for doing so. The other thing that this is highlighting is that the ECB bank stress test is not worth a penny, and did not take account for actual stresses.


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## Sunny (22 Nov 2010)

The regulator sticks by this capital requirements and he is right. The current capital in BOI is sufficient and will be in AIB once they raise the money. The problem is going forward. Banks need profits to generate capital to replenish the capital that they will use to cover losses in their loan books. If the banks can't generate these profits, then the the capital has to come from another source. The market is concerned that the banks won't be profitable enough to generate internal capital and they are probably right.


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## ecstatic (23 Nov 2010)

BOI used to allow 20k transfer from there online banking account now only 5k even though it says 20k on the screen!


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## Brendan Burgess (23 Nov 2010)

Matthew Elderfield commented on it yesterday: 

[broken link removed]

I gather that the Central  Bank's views is that the banks will be adequately capitalized. However, the markets don't agree and that is what matters. 

It wasn't particularly relevant, then the liabilities of the banks were guaranteed by the Irish government, but when the markets questioned whether or not the Irish government could honour those guarantees, the deposits flowed out. 

I think that the strategy now is that if the banks are overcapitalized, then then depositors will be happier. 

Brendan


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## tyoung (24 Nov 2010)

I'm not a banker so I may be making so very basic errors but does deposit flight effect the capital adequacy of a bank? Certainly the loan to deposit ratio increases which is considered a sign of instability but are other capital ratios effected?
A bank run is a liquidity issue which is why most countries have solid deposit guarantees and a central bank to provide liquidity if needed.
  Irish banks have a solvency problem (and maybe a liquidity problem as well).
 I think NAMA is part of the problem. There was a suspicion that NAMA was a way of funnelling money to the banks by overpaying for assets. The hue and cry over this caused it to force a bigger haircut on the loans that it bought. But the bigger the haircut the more capital the banks will require.
Also by putting a value on the loans NAMA does buy it forces the banks to revalue (downwards) the loans they don't transfer forcing them to recognise  losses now and so incresing their capital requirements.


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