Our banks are broke and the guarantee is simply an illusion

The illusionary and illogical nature of the Irish banking system is amply displayed in your discussion of the ELG scheme in your recent article ‘weaning banks off guarantee scheme’.

Those who might provide significant deposits to the Irish banks realise that the guarantee provided is simply worthless. It only provides the illusion of security to those who don’t actually think about it too much and professional and institutional investors think very carefully about where their money is now.

How could a government which itself is in the process of being rescued by the IMF et al, come up with €87 billion if it had to?

The government has to be lent money to fund day-to-day expenditure – it is broke, it could never pay on this guarantee.

The fact the State collects fees for providing this form of questionable insurance would be a positive if it wasn’t for the fact the State owns most of the institutions now and so is merely paying itself to provide a guarantee it can never provide.

Thus in order to wean the banks off the guarantee, they need to convince them it is useless.

The real problem with the Irish banking system is that most banks are potentially insolvent — a substantial quantity of the loans they made with depositors’ money are unlikely to perform and the security they have is also questionable.

The only question is the timeline by which the banks fully recognise these bad loans and mark them to their true market value instead of fudging on this issue in various ways.

Until Irish banks address their solvency issues, then the only people who will make up shortfall funding is the ECB/ICB who have to, in order to avoid a domino collapse of the European banking system as a whole.

Our banking system exists because of the temporary self-interest of others.

Anthony Sweeney

Erlangen

Germany