‘State may have to nationalise major banks’

FULL nationalisation of the major banks may be the best way of ending uncertainty about the future of the banks.

This was according to Dr Alan Barrett, chief author of the Economic and Social Research Institute’s (ESRI) Quarterly Economic Bulletin, when he presented the institute’s Quarterly Economic Commentary for spring 2009.

His views were echoed yesterday by Friends First chief economist Jim Power.

Speaking at a Cork Chamber breakfast briefing yesterday, Mr Power said there is a “huge probability” that the government will be forced to nationalise AIB and Bank of Ireland.

Dr Barrett did not go that far, but he said the uncertainty about the valuation of assets in the two banks might still result in the banks being nationalised.

Stressing he was not a “banking expert,” Dr Barrett said he was interested to know the extent of the NAMA (National Asset Management Agency) proposals, before making a final judgment.

Lack of information prevented the ESRI presenting a “comprehensive assessment of NAMA” because of the “lack of full details”.

While he welcomed the move towards decisive action on the banks, he thought NAMA faced a few key issues.

How those are resolved would be crucial to the final solution.

Dr Barrett said the major problem was trying value the assets in a market that is effectively dead at present.

The problem is that if the assets are “downgraded” relative to current values, the banks will end up “requiring further funding in the years ahead.

From his perspective, going the NAMA route “doesn’t bring closure to the issue”, he said.

“Nationalisation” would solve many of those uncertainties and simply would reflect the fact the banks are only functioning because of the state guarantee.”

Financier Dermot Desmond is implacably opposed to such a move.

Mr Desmond said we should park the bad assets question until it becomes possible to put a true value of what is on the books of the major banks.

If NAMA goes ahead it will turn ito another quango, Desmond warned.

It would be better if the assets were allowed to stay on the books of the banks, but isolated from the day-to-day activities.

NAMA could then be given a co-ordinating role to ensure the assets were managed properly and the best return achieved for all concerned.

Dr Barrett said, however, full nationalisation of the banks might be the best short-term solution, given the inability to nail down the asset question and put a floor under the debate as to what the properties are worth.

He said also the threat of a levy at the end of the process was self-defeating because it left the banks liable for all of the losses, which was not the aim of the exercise, he said.


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