THE decision to split Anglo Irish Bank into a funding bank and an asset recovery bank received a mixed response from economists who described it as “confusing” and lacking in clarity.
Finance Minister Brian Lenihan said the option to split the bank had been chosen because the alternative of closing the bank immediately exposed the State to a debt of €72 billion. Under the plan, Anglo will be split into a so-called good bank, which will retain the lender’s deposits, and an asset recovery bank which will run down its loans over time.
However, analysts expressed disappointment at the lack of detail and clarity in the plan.
Associate professor of finance at Trinity College Dublin Brian Lucey said, “It’s very confused, it’s very confusing. All of the informed blogs and discussions are confused. There is a lot of clarity missing from this. Here is a couple of problems that don’t seem to be addressed. First of all, the Department of Finance has on their website their statement which says there will be a good bank and a bad bank and these two will be separate.
“On the other hand they have issued a set of questions and answers to market participants which are being discussed on irisheconomy.ie and those seem to indicate that the funding bank will, in fact, be funding the bad bank. So, how these can be entirely separate is not clear.
“It seems to me like they are doing a larger version of the post office savings bank. But we already have a post office savings bank, so why create another.”
Prof Lucey was also critical of the timing of the announcement, considering the finance minister offered no cost for the final bill for Anglo, other than that it should be known by the end of October.
“It doesn’t make a titter of wit, as far as I can see, to be announcing things on the fly. We have been doing this for two and half years and the bond markets, from which we rely on our money are fed up of it. If we are going to have a final statement in October, why not wait until October for the final statement.
“I think it really shows an appalling lack of understanding by the Government Press Office of the power of media. There are influential blogs out there that are tearing this thing apart. It has already been described as a ‘Lehman type’ and an ‘Enron type’ financing for Irish Government. That’s awful to have that and it’s coming about because of confusion.”
Chief economist with Bloxham’s Alan McQuaid was also critical of the lack of clarity in the plan.
“We’re still none the wiser. Okay, it tells you the route they’re going, but I don’t think it gives you any clarity on the amount of money it’s going to cost the exchequer which is what the market is worried about. I don’t think the market gives a hoot one way or the other if it’s a ‘good bank/bad bank’ or if it’s wound up. The issue is how much it’s going to cost.”
Professor of economics at University College Dublin Karl Whelan praised parts of the plan, but said it did nothing to provide clarity on the ultimate cost to the taxpayer.
“That the new bank isn’t making lending is a good thing. The bank didn’t have the capacity to transform itself into a small business lender or other proposals the management were floating. It will presumably need less money to be capitalised as a pure deposit-funding bank.”
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