1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Overcoming the Banking Crisis in Ireland

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.

English

Keywords: stress tests, banking supervision, financial stability, government guarantee, financial crises, Ireland
JEL: G01: Financial Economics / General / Financial Crises; G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages; G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation; H81: Public Economics / Miscellaneous Issues / Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
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