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Overcoming the Banking Crisis in Ireland

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  • Muge Adalet McGowan

Abstract

Ireland is recovering from an extremely large banking crisis born of over-exuberant property lending. The government has taken a wide range of measures to tackle the crisis over the past 3 years. Larger bad property loans have been transferred to a government controlled “bad bank”, NAMA, and the associated heavy losses fully recognised by the banks. NAMA needs to focus on maximising tax payer returns from disposing of this asset portfolio. The banking system was recapitalised in mid 2011 following stringent bank “stress tests”, which proved to be a crucial turning point in the crisis by helping to draw a line under losses. Restructuring of the domestic banking system around two core pillar banks is underway but the domestic banking system is still too large. Selling down the banks’ large portfolio of foreign assets will help to downsize the banks. It will assist in reducing reliance on Eurosystem liquidity while minimising the squeeze on domestic credit. As confidence in the financial system is regained, the authorities should further restrict the government guarantee of bank liabilities. Revamped bank regulation and supervision should utilise a wider set of indicators and rules beyond standard capital ratios and pay greater attention to macro-financial linkages. Surmonter la crise bancaire en Irlande L'Irlande se remet d'une crise bancaire d’une ampleur extrême née de l'exubérance excessive du crédit immobilier. Ces trois dernières années, le gouvernement a pris toute une série de mesures pour remédier à cette crise. Des créances immobilières irrécouvrables, d'un volume considérable, ont été transférées à une « structure de cantonnement » sous contrôle public, la NAMA, et les lourdes pertes correspondantes ont été intégralement passées en charge par les banques. La NAMA doit se concentrer sur la maximisation de la rentabilité pour les contribuables lors de la cession de ce portefeuille d'actifs. Le système bancaire a été recapitalisé à la mi-2011 après l’application aux banques de « simulations de crise » rigoureuses qui auront marqué un tournant essentiel en contribuant à mettre un terme aux pertes. La restructuration du système bancaire national autour de deux banques piliers est en cours mais la taille de ce système demeure trop importante. La revente de l'important portefeuille d'actifs étrangers des banques contribuera à la réduire. Elle permettra de diminuer la dépendance du secteur à l'égard de la liquidité du système européen de banques centrales tout en minimisant la pénurie de crédit d'origine interne. Avec le retour de la confiance dans le système financier, les autorités devraient restreindre davantage la garantie publique des engagements bancaires. La refonte de la réglementation et du contrôle bancaires devrait s'appuyer sur un ensemble plus large d'indicateurs et de règles allant au-delà des ratios classiques de fonds propres et devrait accorder plus d'attention aux interactions macrofinancières.

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File URL: http://dx.doi.org/10.1787/5kg22xztktmx-en
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 907.

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Date of creation: 22 Nov 2011
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Handle: RePEc:oec:ecoaaa:907-en

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Keywords: Ireland; financial stability; banking supervision; financial crises; government guarantee; stress tests; simulations de crise; garantie publique; Irlande; supervision bancaire; crise financière; stabilité financière;

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