Ireland’s Banking Legacy

As the European Union moves from crisis to crisis in dealing with its banking mess, Irish people, like many other nationalities, are suffering the pain of various austerity measures. There is still a lot of anger in the country at how the crisis developed and how the State and Europe reacted to it.

From 2002 to 2007, there was rapid growth in the Irish economy, generated by a booming construction sector and consumer spending, fuelled by cheap credit as a result of membership of the euro-zone, reckless bank lending and ‘light touch regulation’, with no regard for ethical considerations. Senior bankers broke every rule in prudent banking, lending too much finance to one individual, too much to one industry, and a general disregard for recommended deposit-lending ratios. They also paid themselves huge salaries and bonuses as well as pension entitlements. This was exacerbated by excessive Government expenditure, financed by unsustainable property-based taxation revenue and big consumer spending. In 2008, economic growth came to an abrupt halt following the collapse of Lehman Brothers in September 2008, which led to a global banking and credit crisis as interbank lending dried up, as well as the crumbling of the Irish housing and personal credit bubbles. This resulted in a swift and deep recession, with negative growth in Ireland, a huge reduction in State revenue, a big increase in unemployment, increased taxation, increased payments in welfare and a large deficit, breaching the EU Stability and Growth norms.

The Government had to guarantee deposits and most of the debts in six Irish financial institutions on September 30, 2008, and later provide capital to keep the banks in existence. The National Asset Management Agency (NAMA) was established to take over most of the toxic debts of big developers in Irish banks in an initiative designed to facilitate their recapitalisation and enable them to resume responsible lending. Pay in many private sector organisations was reduced and across all the public sector from January 2010, as well as the imposition of pay and pension levies. The banks were effectively insolvent and their losses were socialised, becoming the responsibility of the State in addition to its own fiscal crisis, much to the chagrin of its citizens. The country had to receive a bailout from the European Commission, the European Central Bank, and the International Monetary Fund in November 2010. All this resulted in an enormous burden on State finances, leading to further pay reductions and new taxation measures.

The banks are now downsizing their balance sheets, concentrating on recovering their reckless loans, and imposing very strict conditions on new loans, with little new lending taking place despite their rhetoric. They are slow in facing up to the fact that many personal borrowers are unable to repay their loans, especially those that borrowed for houses between 2004 and 2008. As they struggle with their circumstances, many borrowers are annoyed that the banks are pressing them hard for repayments and accept no responsibility for their plight, despite their reckless lending and the fact that they were saved from closure by tax-payers. They also see some individuals, including senior bankers, who received huge loans, leave the country and avail of quick bankruptcy procedures in other countries. Many housing loans will require re-negotiation, leading to re-scheduling, write-downs, debt for equity swaps, write-offs, or some other arrangement. The Government recently introduced legislation to provide a mechanism for personal insolvencies where no other suitable arrangement can be agreed. Austerity measures are depressing a flat economy where there is little growth. Many are now calling for cautious expansionary policies in an effort to promote investment, consumer spending, growth and employment. As the country endeavours to deal with its huge banking and personal debt problems, many would welcome a short and effective investigation into the banking and regulatory practices that led to the biggest banking crisis in Irish history.

Bernard O'Hara's latest book entitled Killasser: Heritage of a Mayo Parish is now on sale in the USA and UK as a paperback book at amazon.com, amazon.co.uk or Barnes and Noble

It is also available as an eBook from the Apple iBookstore (for reading on iPad and iPhone), from Amazon.com and Amazon.co.uk (Kindle & Kindle Fire) and from Barnesandnoble.com (Nook tablet and eReader).

An earlier publication, a concise biography of Michael Davitt, entitled Davitt by Bernard O’Hara published in 2006 by Mayo County Council , is now available as Davitt: Irish Patriot and Father of the Land League by Bernard O’Hara, which was published in the USA by Tudor Gate Press (www.tudorgatepress.com) and is available from amazon.com and amazon.co.uk. It can be obtained as an eBook from the Apple iBookstore (for reading on iPad and iPhone), from Amazon.com and Amazon.co.uk (Kindle & Kindle Fire) and from Barnesandnoble.com (Nook tablet and eReader).