# Why not set up a new bank with the €8bn?



## csirl (10 Feb 2009)

The Government seems determined to pump €8bn in taxpayers money into banks, who wont disclose the full extent of their liabilities, arent cutting their own salaries and have got us into this mess in the first place. What confidence is there that we will get any benefit out of this money? It certainly doesnt give anyone any more confidence in the banks.

Simple solution:

The Government should ignore the existing banks and set up a new bank using the €8bn to capitalise it. 

Could you imagine the impact this would have on the economy? The only bank in the developed world with loads of capital and no toxic loans on its books. It would attract depositors from all over the globe which will increase its reserves even more. It could highlight the "no toxic liabilities" slogan in its international advertising. 

This bank would be easily able to lend to viable businesses in Ireland thus eliminating their cash flow problems. 

The devils advocate answer to this seems to be "you cant just set up a bank, where do you get branches, staff etc......."

To start with, the Government now owns a load of Anglo Irish Branches. It can close Anglo and use the branches for this new bank. There are now a load of ready to go branches on the market from the First Active/Ulster merger. There are also a lot of vacant branches left over from the Permo TSB merger. It would not be difficult to get the physical infrastructure in place with branches in most major towns within a short space of time and at minimal cost.

All you'd need to do is find a new HQ building and staff it - and there are a lot of commercial buildings, including some the Government are already renting, vacant in Dublin. 

You do a "Ryanair" with this new bank. The staff are hired on different more cost effective contracts - multitasking, less "executives", reasonable wages, less discretion to deviate from the standard products/rules. No doubt there will be a lot of staff with banking experience on the dole very soon, so you'd have a choice of who to hire. Replicate the same in the branches and HQ - no frills, no fancy furniture and offices, have most people banking online. 

My opinion is that the positives associated from having a new more effective bank which is fully capitalised and insulated from the toxic debt will more than outweight the negatives of losing some of our existing banks. If an existing bank goes bust, at least we'll know that we are limited to compensating only ordinary depositers (so ordinary people will not lose their savings).

Then in 5 years time, when this is one of the biggest banks in Europe (after the rest go bust), we then sell it off at a big profit.

You cant lose with this approach.


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## amgd28 (10 Feb 2009)

Was thinking about this also this yesterday and it is fairly compelling - although to be honest I was considering it from an investor's perspective (i.e. use privat equity to se up bank, rather than Govt). 
Issues however would relate to the speed with which such an institution could get up and running and the speed at which it could bring in account holders, have a comprehensive online banking system set up etc etc would mean that by the time it is viable, the economy would have tanked even further due to lack of credit from existing banks (who would have to hoard even more cash to build up reserves in the absence of capital injection).
I think you would achieve the same end by tranferring toxic debt (at market price) from AIB/BOI to Anglo and gradually run down Anglo over a number of years.


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## Joody1 (10 Feb 2009)

Make sure that people that are employed to run the new bank are qualified in banking ..

Today the Royal Bank of Scotland bosses had a gruelling session by a selective committee in the UK about the appalling way the bank was run which is now almost owned by the tax payers.

Now they not only made mistakes which they have admitted and apologised  but one of the executive Hornby was employed again as a consultant on £60k a month to clear up the mess he was responsible make.  

The current bank leaders will be grilled tomorrow.  From what they say there were 2 people were absent from the bank line up which were Brown and his Darling.

http://news.bbc.co.uk/1/hi/business/7880292.stm

Joody


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## csirl (10 Feb 2009)

amgd28 said:


> Was thinking about this also this yesterday and it is fairly compelling - although to be honest I was considering it from an investor's perspective (i.e. use privat equity to se up bank, rather than Govt).
> Issues however would relate to the speed with which such an institution could get up and running and the speed at which it could bring in account holders, have a comprehensive online banking system set up etc etc would mean that by the time it is viable, the economy would have tanked even further due to lack of credit from existing banks (who would have to hoard even more cash to build up reserves in the absence of capital injection).
> I think you would achieve the same end by tranferring toxic debt (at market price) from AIB/BOI to Anglo and gradually run down Anglo over a number of years.


 
As lending to business is the most urgent issue, this can be done via as few as c.5 branches placed strategically throughout the country. All you would need is half a dozen staff in each to get it going. It would be initially lending out of the €8bn in cash it will have, so deposit accounts are not needed on day one. Staff would be lending under very strict rigid criteria laid down and supervised by the Dept of Finance/NTMA. The time it takes to hire 30 staff, who need not be too senior as being supervised initially by Dept of Finance/NTMA. Probably could be done inside 2 weeks if the will was there.

The remainder of the branches, online banking and taking deposits could be added gradually over a number of months. 

I dont favour the transferring of toxic loans from existing banks to Anglo. It rewards failure and keeps the bank employees who got us into the mess in charge. You could guarantee that the couple of existing banks that do survive if no bailout is given would be in much better shape if they managed to get through the experience.


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## markpb (10 Feb 2009)

Would there not be a legal problem with this? The state would be using state funds to set up a company which would compete with other Irish and European banks.


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## Joody1 (10 Feb 2009)

csirl said:


> I dont favour the transferring of toxic loans from existing banks to Anglo. It rewards failure and keeps the bank employees who got us into the mess in charge. You could guarantee that the couple of existing banks that do survive if no bailout is given would be in much better shape if they managed to get through the experience.



I was not aware that Ireland was exposed to toxic loans or debts.  

Joody


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## csirl (10 Feb 2009)

Joody1 said:


> I was not aware that Ireland was exposed to toxic loans or debts.
> 
> Joody


 
This is our banks biggest exposure. Large sums of money given to property speculators in respect of assets that are well in negative equity and the speculators cant afford the repayments.


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## Joody1 (10 Feb 2009)

csirl said:


> This is our banks biggest exposure. Large sums of money given to property speculators in respect of assets that are well in negative equity and the speculators cant afford the repayments.



The CEO's of banks that are responsible for given large amounts of money to speculators with negative equity access should be sacked immediately.  Someone with common sense should take over and see what can be salvage from the speculators assess. Also the heads of banks and the layer below them should be given the boot forthwith.   


Joody


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## ontour (10 Feb 2009)

> Staff would be lending under very strict rigid criteria laid down and supervised by the Dept of Finance/NTMA. The time it takes to hire 30 staff, who need not be too senior as being supervised initially by Dept of Finance/NTMA. Probably could be done inside 2 weeks if the will was there.


 
So your first assumption is that the Dept./NTMA can run a bank which I find a bit questionable.

Secondly, the need for loan processing, credit checking, legal documentation, risk management and compliance, as well as all the normal HR, health and safety etc. being covered by 30 'not too senior people' running 6 branches is daft

Thirdly, as others have metioned, the systems, both technological and procedural, that would need to be in place would take considerable periods of time. Most bank set ups take a number of years.  
Finally, for now, you are completely ignoring that fact that proping up the banks is intended to protect their current borrowers (and savers). Your cunning plan of letting the major banks fail results in them calling in current mortages and loans, so those people have to get money elsewhere....oh your new bank....wait, we need a lot more than €8bn...... The problem is not simply one of not having the cash to give new loans, the problem is that they are losing their credit facilities which cover their current loans.

Your theory may have more use in the health service than banking. Build new hospitals and just stop funding the existing hospitals....if it wasn't for those pesky unions !


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## darag (11 Feb 2009)

This idea does not make a whole lot of sense to me to be honest.  As ontour points out, setting up a bank is not like setting up a corner shop.  It is a hugely complex, expensive and time consuming operation which makes the idea somewhat academic.

Even if possible, I'd question what this would achieve in the medium to long term.  Yes the new bank may be in a position to offer more loans to business for a while.  However given that this bank would start off with a free 8 billion, it would have a huge competitive advantage over the existing struggling Irish banks and would be more than likely to suck up any profitable business at their expense.  Given that earning profits is the only hope for these banks to survive and that the tax payer has to pick up the tab if any (or all) go bust, weakening these existing fragile banks probably to point where you'd have to nationalise them anyway by setting up a nationalised bank does not make strategic sense to me.

Because of last September's guarantee, we're not just dealing with a banking problem now as the banks' fate is now linked to that of the country as a whole.  Hurt any of these banks and the cost of the damage effectively comes out of the public purse.


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