Thursday, 17 September 2009

NAMA and 'Systemic Importance'

Nat O'Connor: According to the Bill, Section 65 (2) "The Minister shall not designate an applicant credit institution as a participating institution unless he or she is satisfied that— (a) the applicant credit institution is systemically important to the financial system in the State,"

According to RTÉ "The breakdown among the five institutions is: Anglo Irish €28bn, AIB €24bn, Bank of Ireland €16bn, EBS €1bn, Irish Nationwide €8bn."

Now that we have more detail about the numbers, are these banks/loans really all of systemic importance? What criteria will the Minister use to determine 'systemic importance'? Will we get to see this systemic analysis? And if not, why not?

The Bill doesn't define 'systemic importance' but the explanatory notes (65) refer to achieving the aims of the Bill set out in Section 2.

Section 2 lists the following aims:
(i) facilitate the availability of credit in the economy of the State;
(ii) resolve the problems created by the financial crisis in an expeditious and efficient manner and achieve a recovery in the economy;
(iii) protect the State’s interest in respect of the guarantees issued under the Credit Institutions (Financial Support) Act 2008 and underpin the steps taken by the Government in that regard;
(iv) protect the interests of taxpayers;
(v) facilitate the restructuring of credit institutions of systemic importance to the economy;
(vi) remove uncertainty about the valuation and location of certain assets of credit institutions of systemic importance to the economy; and
(vii) restore confidence in the banking sector and to underpin the effect of Government support measures.

This gives some indication of what 'systemic importance' means but it is far from a full definition. Also, points (v) and (vi) restate 'systemic importance' - in other words, it is a circular reference that fails to say how the Minister will determine this!

As I argued earlier, a billion euro is a lot of money. So if we can shave off a couple of billion, even a few hundred million, from the above loans, by showing they are NOT of systemic importance, then so much the better for taxpayers (and their children, and grandchildren).

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