Why foreign banks should not avail of Republic of Ireland guarantees

A number of non-Irish banks operating in the Irish market have expressed concern that they are at a competitive disadvantage because the state guarantee on bank deposits and debts does not apply to them. They are right to be concerned. No sane Irish depositor would leave their money in a non-Irish bank where they would risk losing it, when they could easily move it to an Irish bank where it would be safe.

However the Financial Regulator of Ireland has the power to regulate only Irish banks. RaboBank, for example, is regulated by the Dutch Financial Regulator. If RaboBank was behaving recklessly or improperly the Irish regulator would be powerless to act. So I think it is very reasonable that the guarantee apply only top those banks over which the state has some control.

Once again the Irish have pissed off Sarkozy, this time by ruining his planned EU-wide guarantee. However I think this was always a bad idea, again because of very national nature of the regulators. I would not like EU-taxpayers' money to be used to underwrite some shabbily run Bulgarian bank. Because responsibility for Bulgarian banking rests solely with Bulgaria, any costs associated with a failure to do so rests solely with the taxpayers of Bulgaria.

It is very clear however that Irish banks have been very reckless in their lending. Their lending practices caused the property bubble. Had banks lent money only to those who could afford to pay it back (like me) house prices would have stayed at reasonable levels. For many years the Central Bank and the Financial Regulator both complained about their behaviour - but did nothing. The government did nothing either. It is as though everyone was happy to continue in their delusion that everything would be great forever provided nobody actually pointed out that the emperor had no clothes.

Of course the government of Ireland has bailed out financial institutions in the past. In the interim, Irish banks have acted illegally, acted against the national interest, and even helped customers evade tax. And now they are to be bailed out again.


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