NAMA idea - too easy

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Firefly

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We need to recapitalise the banks and Anglo is costing us an arm and a leg. Why not transfer all the deposits from Anglo to AIB & BOI (which would capitalise them) and as per David McWilliams let the overseas bond holders take the hit?
Forgive me if I'm missing something obvious!!
 
Firefly said:
We need to recapitalise the banks and Anglo is costing us an arm and a leg. Why not transfer all the deposits from Anglo to AIB & BOI (which would capitalise them) and as per David McWilliams let the overseas bond holders take the hit?
Forgive me if I'm missing something obvious!!
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Deposits don't capitalise banks because it is not risk capital. They are simply liabilities. To move the deposits from Anglo to another bank, Anglo (the taxpayer) would have to give the other banks assets of some form for them accept the deposits. Otherwise it would be no different to you offering to take on someone else's mortgage obligations for nothing.

It's the right idea if you want to just liquidate Anglo, save the despositors and make the bondholders pay but it doesn't help the other banks from a capital point of view.
 
Did David McWilliams suggest this? I presume he was not having a Brian Lucey moment and that he meant transfer deposits and backing assets from Anglo and then liquidate what's left.

As Sunny points out this would not have any positive capital effect on the transferee banks. But it would achieve torching bondholders whilst protecting depositors without recourse to the taxpayer.

Too easy? Yep, it would be downright fraud. A healthy bank could at any time transfer deposits plus backing assets to another bank without much hassle. But to do so knowing what is left is to be wound up would be preferential treatment of one group of creditors (depositors) over another (bondholders) in advance of a winding up. In law these two groups are entitled to equal treatment as creditors of Anglo.

It is okay to wind up Anglo and let both sets get Xc in the € and then for the taxpayer to step in and make the depositors whole. But obviously this is no silver bullet.
 
Had to pinch myself reading that Brian Lucy article again.:eek: Anyway here is what David McWilliams has to say about the deposit guarantee. His novel solution, he is first to mention it, is to insure the deposits with an international insurance company.
That second option involves getting the creditors of the banks in a room and telling them the Irish people have no interest in propping up the banks any more. We would have to buy a deposit insurance policy from a large international insurance company (which big one wouldn't like such a huge slice of business?) and away we go.
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I am trying to assess on the scale of utter nonsense is this even worse than BL's "sell the deposits" moment. About the same, I would say. McWilliams says the plan is to liquidate the banks, do a deal with creditors (that presumably includes depositors) and then get that insurance company to make the depositors good. Apparently, the AXAs, Allianz' and Avivas of this world would only be panting for such "a huge slice" of business.:rolleyes:

Professor Lucy made an unbelievable howler. He hasn't quite admitted so but I he realises it, he certainly hasn't repeated his suggested magic solution. McWilliams is a different kettle of fish. He is a self serving ignoramus who amongst other things suggests exiting the euro. Overall I have a lot of respect for our MoF but what on earth persuaded him to go garlic chewing to seek advice from McWilliams?:(
 
Hey Duke, I am confused again! I haven't read the article but is he suggesting that the government go to an insurance company and say 'hey guys, we are going liquidate a bank or just make stupid nasty creditors take a loss. However, we don't want depositors to lose money so will you insure them? Oh and we assume that the premium you charge for underwriting that risk of billions of euro will be as cheap as chips because we are broke'
 
Sunny I gave a link to the article, but you are very wise not to have read it. I extracted the key quote though and it appears that he is suggesting precisely that in a liquidation process depositors can be looked after by an international insurance company whilst the bondholders get torched.

Maybe he means something else but what ever way you look at it the idea that an international insurance company can supply the silver bullet is definitely a "sell deposits" moment for David.
 
I've just had a deposit selling moment of my own. Why doesn't the NTMA fill its boots with Ireland Credit Default Swaps (using a nominee account of course);)

Then go ahead and default. Collect on the CDS and compensate the defaulted bondholders. Everyone's a winner except those silly people who write CDS.:D
 
Duke of Marmalade said:
I've just had a deposit selling moment of my own. Why doesn't the NTMA fill its boots with Ireland Credit Default Swaps (using a nominee account of course);)

Then go ahead and default. Collect on the CDS and compensate the defaulted bondholders. Everyone's a winner except those silly people who write CDS.:D
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Excellent idea, but I think it may be fraud :-o But then again it's the government, fraud is in their nature.

I think the biggest flaw with Lucy's "idea" of forcing banks to get deposit insurance on the open market is that there is probably no insurance company in the world that would take on that risk. Effectively, such an insurance product would be a form of protection against insolvency. But how do you insure a business from insolvency that is in a permanent, government protected state of insolvency?
 
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