One Bank, Two Bank

Good bank, bad bank.

The IrishEconomy FG call for a good bank to be instituted (could one even begin to turn Anglo into it? – I doubt it) with clean balance sheets while the bad debt was shifted to what amounts to a stuffed shirt with a banking licence, managing decline, is an interesting one.

“This would involve separating from within each bank a new bank which would hold all the state guaranteed deposits and which would buy those parts of the loan book such as residential mortgage loans and business overdrafts which can be easily valued from the existing parent bank. This would constitute a new good bank with a clean balance sheet. Its capital base would be provided by the taxpayers’ recapitalisation, hopefully with other private capital, and some small shareholding could be given to the existing shareholders. These new banks would then be well capitalised with a clean balance sheet and fully open to resume lending.”

The writedown of the bad assets appears implicit here, but the separation of the banks will cost. Politicians who are negotiating the deal know that this cannot fly without a pound of flesh and bank bonuses and executive resignations are precisely those. As well as the necessity for flexible renegotiation of mortgages which see people now massively overstretched.

The public will not countenance a bailout for those who are deemed to have paid too much (“its their own fault” I have heard more than once) but flexible repayment of the principle and deferrment of the repossesion option is vital to restart the economy (and twelve months is probably not long enough to restore balance). The mortgage period will get longer but that can be dealt with subsequently.

The IL&P decision on bonuses ratchets up pressure on their peers to part with the bonuses that will condemn sucessors to the the top tier in the bank to lower remuneration (while still enormous relative to the average industrial wage).