Getting banks back on track

IT is five years since the collapse of Lehman Bros in the US, but in Irish terms, Lehman was just the final hiccup which served as the precursor to the inevitable retching that Irish banks were about to endure.

Banks rarely go bust overnight. It was the profligate lending of the boom that broke them. By the time of the Lehman’s collapse, the bank share prices had been falling for 18 months and were down 50% from their peak.

The blanket two-year guarantee issued in Sept 2008 tethered the State to the banks just as they went into freefall. In some cases, a bank rescue, and the ensuing costs, was inevitable. The costs of a collapse of the domestic banking system would have been even greater. The case for rescuing Anglo Irish Bank and Irish Nationwide Building Society was always weaker. They should have been put into resolution rather than rescued.