Friday, August 28, 2009

FG/Bruton anti-NAMA proposal is, sadly, rubbish.

There are legitimate arguments to be made on both sides of the NAMA/ Nationalisation debate, even if I detest the Lucey & Co/populist media commentator loose approach to the potential numbers involved.

But, as a life-long ABFFer I regret to say, the Bruton/FG approach, as espoused in today’s IT, is a clear recipe for disaster, as it displays a complete ignorance of how the real world economic/banking system works.

Firstly: we’re now faced with a banking system where foreign-owned banks e.g Ulster, BoS(I)/Halifax, NIB, ACC etc..are effectively in retrenchment mode, they’re actively seeking to reduce their exposure to the Irish market.

When it comes to domestic players, Anglo Irish & Irish Nationwide are dead in the water, while permanent/TSB & EBS are actively trying to deleverage and reduce their loan books – just look at the uncompetitive interest rates they are quoting.

The only real players in the marketplace are AIB & BOI – and god knows they’re fussy enough about extending new credit.

But, between them AIB & BOI are by far the biggest players in all our key banking markets – deposits, lending (both to SMEs and consumers, mortgages,) money transmission (current accounts, payments) etc etc..

So what is essence of the Bruton/FG proposal, insofar as it affects the real economy?

1. Put the two main banks that drive economic activity in this country (even more so now all the foreign-owned banks want to pull out) on a death-watch for September 2010.
2. Create a new “National Recovery Bank” with no branches/outlets of any kind.

What does Bruton/FG think that (1) above will achieve, other than cause AIB/BOI to pull lines of credit from any even slightly dodgy small business across the country, in order to bolster their balance sheets,never mind not extending credit to new business? Even if they wanted to lend they couldn’t – because the FG policy proposal would mean that depositors would immediately start to move their funds elsewhere – to banks which aren’t lending to Irish business/consumers.

How does he think that the National Recovery bank will operate for SMEs when it has no distribution outlets? Online/Phone perhaps? This is a serious question.
The only certainty is that it will pick up every bad business in the country as a grateful client.

There are legitimate questions/challenges for NAMA, mainly around how taxpayers interests can be protected. Nationalisation or majority state ownership of the two main banks may well be an outcome.

But letting the economy/banking system stew for 12 months more than necessary, as espoused by Bruton/FG, is simply a recipe for disaster.

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