Banks crisis worsens, so don’t rely on them to get credit flowing again

THE Government has told us repeatedly over the past 18 months that a fully functioning banking system is essential to our economic wellbeing. This has been its justification for keeping what are in reality failed banks in existence.

The promise has been that once NAMA comes into being and the banks offload most their biggest loans to the property developers – by selling them to NAMA at a most generous and excessive price – the banks will become more active in providing fresh finance to customers, both personal and business. It is a nice theory but doubtful if it is going to work in practice – our crisis with the banks is still getting worse.

The sums involved at NAMA are going to be different to those first envisaged. The realisation has dawned on those working in NAMA, and more importantly at the Department of Finance, that it is implausible to say the €77 billion of loans being transferred off the books of the six main banks are worth €47bn: the valuation of the underlying assets, especially land on which no development has taken place, means they are worth far, far less.