# The €24bn additional bank bailout - is it 100% happening?



## RMCF (1 Apr 2011)

I listened to a lot of depressing media coverage over the last 2 days regarding the additional €24bn for the banks, and I was wondering if its a case of bad news again being given more hype than it deserved?

After all, this Black Rock crowd apparently were using the worst case scenario figures, and the €24bn figure was if house prices fell another 35% and X amount of people defaulted. 

But what if this doesn't come to pass? What if prices fall just 5% more, and less people default on their mortgages than BR think will? Surely this 24bn figure will not be the true figure. Its not needed right now this week afaik.

Perhaps I missed something?

Or is it a case of why should we let the truth get in the way of a good/bad news story.


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## mercman (1 Apr 2011)

RMCF said:


> were using the worst case scenario figures,



In case, and with every respect, we are all living in a worst case scenario whether we like it or not. Wait until next week, when Interest rates increase and mortgage defaults continue to pile high. We are heard and listened tp the news over the past 24 hours. However not one single person aired a different story. Prices will have to fall more than 5% as there is no finance available for people to purchase residential property. And as for Commercial property, there was one single Investment deal in Ireland in the first three months. 

The timehas come for people to wake up and smell the coffee. Things are as bad as they are illustrated and likely to get worse.


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## RMCF (1 Apr 2011)

mercman said:


> In case, and with every respect, we are all living in a worst case scenario whether we like it or not. Wait until next week, when Interest rates increase and mortgage defaults continue to pile high. We are heard and listened tp the news over the past 24 hours. However not one single person aired a different story. Prices will have to fall more than 5% as there is no finance available for people to purchase residential property. And as for Commercial property, there was one single Investment deal in Ireland in the first three months.
> 
> The timehas come for people to wake up and smell the coffee. Things are as bad as they are illustrated *and likely to get worse*.



But do you think the banking issue has finally been put to bed with this extra money?

I appreciate that mortgage defaults, more unemployment, more shop and business closures etc will probably continue to happen as we have a long way to go before we can see light at the end of the tunnel.

But if the bank issue was finally sorted, considering this is the 5th time we have been told its at an end, then we could at least move on to other problems in the economy.


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## mercman (1 Apr 2011)

The Banking issue has in essence been resolved but in the main Banks are going to have to revert to traditional Banking. If a customer wants to borrow money for asset purchases, then they will have to show a certain amount of security for the facility. 

Much of the problem was caused by Lies, Lies and more Lies, followed by Greed, Greed and more Greed. 

We have all acted as the shoulder to cry on, but none of the retailers ever offered to pay their landlords additional money when they were making huge money. There are many people out there who are a landlord as a profession. They have to live as well, and to simply allow tenants off the hook for their rent is far beyond realism. Sure things are bad but everyone is in this together, not just a few that make loads of noise.


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## horusd (1 Apr 2011)

RMCF said:


> But *do you think the banking issue has finally been put to bed with this extra money?*
> 
> I appreciate that mortgage defaults, more unemployment, more shop and business closures etc will probably continue to happen as we have a long way to go before we can see light at the end of the tunnel.
> 
> But if the bank issue was finally sorted, considering this is the 5th time we have been told its at an end, then we could at least move on to other problems in the economy.


 
I heard Prof. Ray Kinsella of UCD say that the total of 70 billion will  not be enough on RTE today. We're still kicking the can down the road by the looks of it. There is a systemic problem in the Euro system, and it hasn't been addressed. This seems primarily due to politicial problems.


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## mercman (1 Apr 2011)

The big problem is that in many cases persons that borrowed the money simply refuse to make efforts to repay the loans. Transferring assets & cash to relatives rather than honour their obligations. Its happening in many countries, so as happening presently the Banks are going to have to put the boot in. We've turned the clock back 30 years and it really it is not going to be nice.


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## Brendan Burgess (1 Apr 2011)

RMCF said:


> But what if this doesn't come to pass? What if prices fall just 5% more, and less people default on their mortgages than BR think will? Surely this 24bn figure will not be the true figure. Its not needed right now this week afaik.



To get back to the original question. 

The Central Bank has dictated that the capital position of the banks must be increased to the levels set, in case, we hit the worst case scenario over the next three years. 

So the capital will be put in now. If things turn out not to be that bad, we will have banks which are overcapitalized. 

Brendan


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## Smart_Saver (1 Apr 2011)

Brendan Burgess said:


> To get back to the original question.
> 
> The Central Bank has dictated that the capital position of the banks must be increased to the levels set, in case, we hit the worst case scenario over the next three years.
> 
> ...


 
But if they don't need that money now why put it in? Surely if all this capital is drawn down it has to be repaid back - plus interest.


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## RMCF (2 Apr 2011)

I just assumed it would be like the last emergency fund the country was cleared to get by the IMF/ECB i.e. draw down on it when you need it, and in whatever amount you need.


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## Brendan Burgess (2 Apr 2011)

I think I might have to write a Key Post on banking capital to explain this. 

But in summary, a bank requires a certain amount of capital to insulate it against potential loan losses. Capital is, effectively, permanent and not repayable. It is not the same as liquidity where the government could just lend them money and get it back if they don't need it. 

What the Central Bank is trying to do is to make sure that potential depositors know that the banks are absolutely safe to deposit money with. To do that is essential that they have permanent capital to absorb any potential losses. 

Brendan


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## Smart_Saver (2 Apr 2011)

Brendan Burgess said:


> I think I might have to write a Key Post on banking capital to explain this.
> 
> But in summary, a bank requires a certain amount of capital to insulate it against potential loan losses. Capital is, effectively, permanent and not repayable. It is not the same as liquidity where the government could just lend them money and get it back if they don't need it.
> 
> ...


 
i'm sorry i don't understand your post more clearly. Essentially what you have said to me here is that it is a quetion of Faith? Will "potential" depositors have faith that there is enough capital in the banks (as you say) to insulate it against possible/potential future losses?

After all that has gone on and now with this draw down if I were a potential depositor I would either 

A: Wait for the future becasue the above implies to me that there will be substantial losses in the future (and with the state of our finances - not too distant) ... or....
B: Demand a very substantial deposit rate from these institutions before placing any capital in them.

Of course maybe I'm completely wrong here and if so please correct me.


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## Brendan Burgess (2 Apr 2011)

Hi Mayo

I don't think it will work. I don't think that overcapitalization will encourage Irish depositors to bring their money back to AIB and BoI. 

I simply don't know if it will help the international bond markets to lend to them. 

Brendan


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## dewdrop (2 Apr 2011)

What really worries me is that the banks and the availability of credit is like a chicken and egg situation. I think most people would agree that they would be slow to invest their own money in any business today in view of the uncertain prospects so the clamour for banks to start lending is not as simple as it appears. I think it will be a slow process to get credit moving again. the fact that people are slow to buy houses is an indicator of the problem that we are facing.


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## DerKaiser (3 Apr 2011)

mercman said:


> The big problem is that in many cases persons that borrowed the money simply refuse to make efforts to repay the loans.



I'm genuinely optimistic that the vast majority of people are honest in this respect.  A lot of people are in trouble because they were trying to honour their business debts and took on personal debts as a result. The same people will do all they can to hold on to their homes

There are some exceptions where the only motivation seems to be malice and complete contempt for the citizens of this state.


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## DerKaiser (3 Apr 2011)

RMCF said:


> But do you think the banking issue has finally been put to bed with this extra money?



I'd be optimistic on this.  At €24bn you'd have to be!!

I don't know how we, as a state, will ever pay it back, but if the EU/ECB are happy to play this game of loading money on us when the markets wouldn't touch us with a barge pole more fool them.

For me this is a gamble that will either leave us more bankrupt than before or it could get the economy going again.


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## RMCF (3 Apr 2011)

There was a good debate on the radio today (may have been a repeat - Alan Dukes was on it) which basically said that we simply will *never *be able to pay all this back (estimated total Irish debt €210-€250bn).

So the 'experts' reckon we will struggle along, playing ball with the IMF/ECB til 2013, then some sort of managed default will happen. Perhaps have a portion of debt written off, along with the likes of Greece, Portugal etc.


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## DerKaiser (3 Apr 2011)

RMCF said:


> There was a good debate on the radio today (may have been a repeat - Alan Dukes was on it) which basically said that we simply will *never *be able to pay all this back (estimated total Irish debt €210-€250bn).
> 
> So the 'experts' reckon we will struggle along, playing ball with the IMF/ECB til 2013, then some sort of managed default will happen. Perhaps have a portion of debt written off, along with the likes of Greece, Portugal etc.



That's about the size of it. Playing along for a few years and seeing what happens after that seems to be the chosen option.

If we were to face up to the full truth now our economy probably would fail, it has to be admitted that finding someone to continue to fund us and playing along with their game is a tempting option when you look at it in a pragmatic way.


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## RMCF (3 Apr 2011)

I asked this before, but to help the amount of wages that have to be paid out to PS workers, would it not be possible, since we now own the banks, that everyone take a 20% pay cut and get 20% off their main debt, their mortgage?

It would help those struggling and reduce the strain on the public purse.

I'm sure there's a perfectly good reason why it can't be done.


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## Leper (4 Apr 2011)

Nice One RMCF - Only thing the banks were always leeches of society and would not even contemplate a reduction of payments from their ordinary mortgage customers.


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## Bronte (4 Apr 2011)

DerKaiser said:


> I'm genuinely optimistic that the vast majority of people are honest in this respect.
> 
> There are some exceptions where the only motivation seems to be malice and complete contempt for the citizens of this state.


 
I'm not so sure on this, we keep reading stories of people who are not paying their debt but still living the high life. Being broke but shopping in Brown Thomas, buying a top of the range rover despite being in bankruptcy and another living in the same house, same car and writing a book about it and owning millions.


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## Complainer (4 Apr 2011)

RMCF said:


> I asked this before, but to help the amount of wages that have to be paid out to PS workers, would it not be possible, since we now own the banks, that everyone take a 20% pay cut and get 20% off their main debt, their mortgage?
> 
> It would help those struggling and reduce the strain on the public purse.
> 
> I'm sure there's a perfectly good reason why it can't be done.


But if you've no mortgage, what happens your pay? If you decided not to pay those mad prices, or you've been frugal and paid off your mortgage early, are you to be penalised?


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## Chris (4 Apr 2011)

DerKaiser said:


> If we were to face up to the full truth now our economy probably would fail, it has to be admitted that finding someone to continue to fund us and playing along with their game is a tempting option when you look at it in a pragmatic way.


This often gets repeated, i.e. the end of the economy and total failure. For this scenario to be true we would have had to have seen the same happen in Iceland. However, after 95% public vote against a bailout, banks quickly collapsed and entered liquidation processes and/or nationalisation (the worse option). Now Ireland's bond yield is about 50% higher, unemployment here is about twice as much as Iceland and Iceland returned to economic "growth" in Q3 last year. I'm not saying it is a walk in the park for them, but the country is in far better shape than Ireland is.



RMCF said:


> I asked this before, but to help the amount of wages that have to be paid out to PS workers, would it not be possible, since we now own the banks, that everyone take a 20% pay cut and get 20% off their main debt, their mortgage?
> 
> It would help those struggling and reduce the strain on the public purse.
> 
> I'm sure there's a perfectly good reason why it can't be done.


Moral hazard for one, but also practicality. 20% reduction in capital owed does not equate to 20% reduction in monthly payment. And how would this be financed? The average person would have to have outstanding mortgage debt equal to their income for this to even remotely balance. But if that were the case then people wouldn't be in trouble.



Complainer said:


> But if you've no mortgage, what happens your pay? If you decided not to pay those mad prices, or you've been frugal and paid off your mortgage early, are you to be penalised?


Absolutely right. This would be one of those "solutions" where the mistakes of a few were to be paid by everyone. Not a recipe for a good society.


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## Smart_Saver (5 Apr 2011)

Complainer said:


> But if you've no mortgage, what happens your pay? If you decided not to pay those mad prices, or you've been frugal and paid off your mortgage early, are you to be penalised?


 
Your pay gets cut regardlss of whether you have a mortgage or not. IMF are back in town and aren't tax receipts down from this time last year.
Anyway - PS pay has nothing to do with mortgages. If you have your mortgage paid off well and good. If you haven't and their is some sort of claw back in favour of the borrower - well and good too (for the borrower)

That's the times we live in.


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## Sim Two (5 Apr 2011)

I've just logged onto the online edition of the Irish Independent to be greeted with four separate articles headlined (sorry, don't know how to provide hyperlinks) 


Confidence vote sparks new hopes of recovery
Credible stress tests inspires confidence
Signs of crises  bottoming out as fall in house prices slows
€7.1bn hole in finances but State hits bailout target
Is such confidence justified?


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## Chris (6 Apr 2011)

Sim Two said:


> Is such confidence justified?



In my opinion a simple No.

Reasons:
1) Projected level of state debt by 2014 is €200-250 bn with an optimistic GDP of €160bn (2010 estimate is €145bn) is way too high
2) NAMA purchased "assets" at Q3 2009 prices; since then real estate has gone down another 10% or more, so NAMA is already in the red
3) ECB rate increases are coming soon, which will push more people into arrears and default, adding pressure on real estate
4) NAMA properties will eventually have to hit the market, especially if it keeps going into the red, adding even more to the supply side of real estate
5) Credit default rates for Irish debt is still increasing, meaning that international investors are simply not confident about Ireland


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## Taxi Driver (6 Apr 2011)

There's some good stuff on the €24 billion recapitalisation here:

http://economic-incentives.blogspot.com/2011/04/banking-on-bank-analysis.html

Clears up a few popular misperceptions but is a bit long.


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## RMCF (9 Apr 2011)

this banking story is becoming a bit of a joke now.

After the long awaited report by Black Rock, which was supposed to draw a line under our banking mess and get us going again, are we to have yet another round of stress tests?

http://www.rte.ie/news/2011/0408/banks.html


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## Sunny (9 Apr 2011)

RMCF said:


> this banking story is becoming a bit of a joke now.
> 
> After the long awaited report by Black Rock, which was supposed to draw a line under our banking mess and get us going again, are we to have yet another round of stress tests?
> 
> http://www.rte.ie/news/2011/0408/banks.html



They are just included with the rest of the European banks. There won't be any surprises. The Irish stress tests were more severe than what these tests are testing.


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## joe sod (10 Feb 2022)

RMCF said:


> After all, this Black Rock crowd apparently were using the worst case scenario figures, and the €24bn figure was if house prices fell another 35% and X amount of people defaulted.


pulled up this thread from the bank bailout period in 2011. The government holding in BOI is now below 5% and Blackrock are now the biggest shareholder with over 7% of the bank and the bank share price is back at its 4 year high, Great success


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