Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie
Hi there,
There is an issue with role permissions that is being worked on at the moment.
If you are having trouble with access or permissions on regional forums please post here to get access: https://www.boards.ie/discussion/2058365403/you-do-not-have-permission-for-that#latest

Expire bank guarantee

  • 22-10-2010 6:41am
    #1
    femur61
    Registered Users, Registered Users 2 Posts: 1,588 ✭✭✭


    If the bank guarantee runs where will our deposits be safe? If our debt is manly high due to fact we gaurteed Anglo does that mean when gaurantee expires our debt will be reduced.


Comments

  • #2
    tenchi-fan
    Closed Accounts Posts: 3,339 ✭✭✭tenchi-fan


    The guarantee on deposits was to stop a run on the banks. If everyone took their money out of Irish banks the banks would collapse. They would not be able to lend out any more money - in fact they would run out of money.

    The main problem is NAMA. Banks lent out a lot of money to developers. A developer would go to the bank, get a loan for €10m and buy a piece of farmland in Cavan for €6m. He would pay himself a huge salary, and pay for architects and contractors and surveyors and start building. He would intend on spending a few million on crappy houses and sell them at a huge profit for people desperate to get on the property ladder.

    The bank would expect the €10m back with interest over the term, and would value the loan at €15m.

    Then the recession happened. The developer's company is struggling, the houses were only half built and there were no buyers.

    When the government asked the banks how the loan book was doing, the bank said "oh grand, we pretty confident the loan will be paid off, we might lose out on a couple of million."

    The government said, well look, the markets don't think you'll get the money back and it's causing a lot of uncertainly. Say, how about we take the loan from you? But we don't agree with your valuation.. we can give you €8m. We'll take the loan from you. In fact, we'll probably make a huge profit. That's a 45% haircut so we know we're getting a good deal.

    And the bankers laughed all the way to the bank... because now Ireland has a €8m loan, a patch of farmland in cavan with unsafe houses that will need to be demolished, and the developer has gone bust and the most we can expect to recover is a few hundred thousand. by selling the development as farmland

    To make matters worse, even the loans that weren't transferred to Nama are not performing so the banks are still undercapitalised and the state needs to pump more money into the banks to stop them sinking.


Advertisement