The Irish Central Bank

March 14, 2014

Ukrainian Crisis

As crisis in Ukraine deepens many are concerned that a war is being stage-managed to deflect from a growing economic crisis effecting the development of the euro area.

The following video gives some balance to the media propaganda that the democratic will of the Ukraine is being denied rather than a foreign backed neo natzi coup hidden from the general news media.

St Patrick’s Day Holiday

95% or more of Irish government ministers, some of the world’s highest paid politicians, have absconded to US and other parts of the world eg Vietnam to take part in St Patrick’s Day parade.

Eamon Gilmore TD interviewed about the high cost of these visits circa €250,000 spoke of the business generated for Ireland, a figure last year he dreamed up was circa €10ml. For example, he spoke of the new direct air routes to Canada.

It gave the RTE reporter a feel good to hear black is white.

Its a bit like Eamon Gilmore going to a football match in Croke Park and claiming his visit won the game for the winners.

On the contrary, such visits abroad often give a Banana Republic feel to observers at home and abroad. In Africa, such involvement in business by government is often seen critically as a mark of corruption, a notice that brown paper envelopes are expected to change hands at some point.

Not to be outdone, Enda Kenny erstwhile dictator of our benign republic entertained guests in the US to a call to telephone him directly if they wish to pursue business interests in Ireland.

Not that we have not learned that the business of government mixing with influential private business interests from developers et al led to our corrupt financial meltdown; that’s safely hidden away shrouded in secrecy carefully shredded from prying eye’s as demonstrated by our lack of a banking inquiry.

Business delegations do not require government ministers, letters of introduction would well suffice; Enterprise Ireland or IDA or a minor official from Department of Trade and Commerce to powerpoint the getgo of VRT/TAX, Corporation Tax and trade regulations would benefit trade instead.

Noonan and the Irish Central Bank

In a surprise move Michael Noonan has urged Morgan Kelly economist at UCD to meet with the Irish Central Bank re Kelly’s fears that property/commercial loans expose Irish SME’s; they could be subject of a new get tough experiment by the ECB following stress testing in 2014. ICB and banks maybe forced not to extend and pretend, they may call in the loans, thus devastating the Irish economy of which the SME’s are backbone.canstock8599636

The advice offered by Noonan reveals the policy making mindset of the Irish government in relation to management of the Irish economy; government is subservient and obedient to the dictats of the Irish Central Bank.

Clearly Noonan wants ICB to persuade Kelly to wear ICB blinkers.

Glove puppet relationships between the Irish Central Bank,  Regulator and government that Noonan’s comments illustrate should be the focus of a long postponed banking inquiry into the causes of our meltdown. Noonan’s comments provide a window into the relationship of government and ICB.

The ICB has a fundamental leadership role in the economic affairs of government, ICB has yet to be probed and brought to account for its role in Irish economic affairs. Its growing Orwellian Big Brother influence on government and Ireland’s economic life should be questioned and scrutinised more closely.

For simplicity, lets reduce questions  to one, what role, if any, has ICB played in our meltdown and subsequent development of macro economic policy in regard to bailout? Does the ICB have any questions to answer? 

Let’s ignore the “Over the four-year period of the Government’s plan, nominal GDP is forecast to grow by over 16%, or almost 4% per annum and real GDP growth will expand at a rate of 2.75% each year.” Pie in the sky figures no doubt from the ever inventive CSO.

The bailout was for €85bn and The Government said: “If drawn down in total today, the combined annual average interest rate would be of the order of 5.8% per annum. The rate will vary according to the timing of the drawdown and market conditions.”

The draconian and odious 5.8% was later reduced to conform with more lenient terms negotiated by Portugal and Greece. Both government and ICB failed in getting better terms. Though market conditions have changed there is no further leeway advocated by ICB.

ICB should be instrumental in demanding write down of Irish debt on the basis that Ireland was forced to take one for the team.

Advice given to the Irish government in relation to the bank guarantee we have yet to examine through a banking inquiry. It’s not insignificant that Prof Honahan of ICB has consistently denied the need for a banking inquiry probing these matters.

Indeed his announcement of a bailout for Ireland prior to its official announcement by government in Ireland arguably denied a better negotiating position for Ireland in relation to bailout.

ICB has fundamental questions to answer in relation to the state guarantee; in relation to the odious and penal interest rates attached to bailout, in relation to “There was no agreement on ‘haircuts’/discounts on bank bond debt.”

ICB as ECB bailiff 

A tougher role in regard to repossessions could have dark repercussions for the Irish economy; withdrawal of lending by Irish banks in anticipation of coming stress tests in 2014 will have negative impact; coercion of the credit union sector will have profound effect on democratic lending patterns in Ireland. All of these matters including its supervisory role of credit institutions should be independently scrutinised.

Since 2011 ICB has launched PRISM:

“Under PRISM, the most significant firms – those with the ability to have the greatest impact on financial stability and the consumer – will receive a high level of supervision under structured engagement plans, leading to early interventions to mitigate potential risks. Conversely, those firms which have the lowest potential adverse impact will be supervised reactively or through thematic assessments, with the Central Bank taking targeted enforcement action against firms across all impact why are we introducing  risk-based supervision categories whose poor behaviour risks jeopardising our statutory objectives including financial stability and consumer protection.”

ICB(Irish Cental Bank) across the credit union sector has applied tightening regulations and supervision leading to much controversy and closure of some credit union institutions. See earlier blogs.

However, Morgan Kelly’s warnings (see last blog) highlight stress test across the EMU in 2014 that may force the ICB to take a stronger line against Irish SME’s, one that could replicate across our economy, the calamitous experience of Bill Cullen with Ulster Bank part of the RBS(Royal Bank of Scotland) group. Bill Cullen claims Ulster Bank destroyed his business.

“Mr Cullen met Tomlinson three weeks ago.

The Yorkshire entrepreneur’s investigations into RBS and two Ulster bank cases has led to more than 40 new complaints from Ulster Bank customers in the Republic of Ireland and more than 50 in the North.

They are now the subject of three separate investigations including one by the UK’s Financial Conduct Authority (FCA).

Tomlinson has branded RBS/Ulster as a ‘vampire bank’.

Three months ago an Ulster Bank whistleblower claimed in the Sunday Independent that staff did close viable businesses  down in order to boost the bank’s bottom line.”

IRISH Central Bank and PRISM  (The Probability Risk and Impact SysteMTM (PRISMTM) is the Central Bank’s risk-based framework for the supervision of regulated firms)

One of the charges made against banks and the ICB was the lack of supervision of the financial sector, lack of regulation, a hands off approach that fatally led to financial meltdown.  ICB has since 2011 focused on risk based assessment and closer supervision of the financial sector, to reduce risk and to potentially avoid domino effects impacting the development of the economy by businesses such as that run by Bill Cullen.

PRISM aims to :

” operate a risk-based supervisory framework similar to that operated by significant financial regulators such as OSFI3 in Canada, APRA3 in Australia, the US Federal Reserve, De Nederlandsche Bank5, and the new Prudential Regulation Authority in the UK;”

Of particular concern to Kelly re SME sector is also highlighted as a concern for the ICB:

“The overall value of impaired loans continues to rise, albeit at a
declining rate (Chart A4). This impacts the real economy and
also the financial system, through a reduction in asset values on
banks’ balance sheets and, thus, affects banks’ willingness to
lend to the private sector. The level of distress among small and
medium enterprise (SME) borrowers is particularly acute. This
endangers not only the profitability of the banking sector, but
also has far-reaching consequences for the viability of corporates
and the employment they generate.

Credit risk is, therefore, a key concern for the domestic banking
sector. While the coverage ratio, which shows the value of
provisions for impaired loans relative to the value of impaired
loans, increased in the third quarter of 2013, uncertainties
remain about whether banks are sufficiently provisioned to cope
with the outstanding stock of distressed loans. The long-term
viability of the banking sector depends on its ability to return to
profitability. There have been some positive funding
developments such as a reduction in official sector liquidity
support, strongly supported recent debt issuance, and declines
in deposit rates, but the overall profile remains fragile and
vulnerable to swings in market sentiment.”
“Responding to the mortgage arrears resolution process initiated
by the Central Bank in November 2011 (including the
quantitative targets set in March 2013), banks have begun to
step up their interaction with borrowers so that sustainable
solutions can be proposed. It is vital that potential modifications
are affordable in both the short and the long-term and that the
changes provide sufficient clarity on what happens to the
collateral at maturity. In addition, restructuring targets have been
set to encourage banks to move distressed SME borrowers from
short-term forbearance to longer-term solutions.”

The ICB has also been embroiled in controversy in Galway with its demand that over 200 credit unions in the Galway area cut lending.

“Independent Senator Rónán Mullen has criticised the Central Bank for ordering over 200 Credit Unions to cut lending.” New rules for the credit union sector have been introduced that have been alleged to be draconian and in breach of the spirit of the credit union sector. The sector is largely voluntary and now subject of bureaucratic requirements and expensive professional expertise and software some argue is targeted at the movement to undermine it in favour of the commercial banking sector.

Mortgage and Commercial Property Lending

While there was no coverage on its 9pm news 11/12April  of the protest of 27000 teachers’ concern on the future of the Junior Cert in Irish education, full 5min coverage of Cheltenham was given including blanket coverage of Enda Kenny’s visit to Downing St; there was instead plenty of coverage across the news media tv/print of a family given a debt write-down of €150,000 on a €400000 mortgage.

The ICB has not backed or implemented a debt writedown of all mortgage debt in arrears on property purchased at the height of the boom bubble, even though original terms were often ridiculously subprime eg 100% mortgages; instead, the ICB has backed an inquisitorial, draconian, Shylock solution open to abuse of unfair influence or uneven decision making, exploiting the vulnerable.

NAMA and bank large developer loans have been written down and supported through recapitalisation of the banks, but crucially the SME sector has been ignored and banks supported in ravaging smaller loans in the commercial and mortgage sector.

The policy of looting and pillaging SME entrepreneurs with the view to large scale debt extraction on a personal one to one basis has not been sufficiently critically scrutinised. Without MABS citizens in mortgage and debt arrears would be left on their own to face the might of the banks.

ICB is in favour of a get tough policy on lending. Its lack of advocacy of a debt write-down scenario similar to that of Iceland is not questioned.

ICB ‘extend and pretend’ policy has had a negative impact on the Irish economy suffocating consumer demand and causing long term damage.

“The Central Bank, assisted by third party experts, has conducted
a Balance Sheet Assessment (BSA) of the credit institutions that
are subject to the Prudential Capital Assessment Review. The
requirement to complete the assessment was agreed with the
Troika as part of the programme of financial sector reform. The
BSA, together with new stress tests by the ECB in coordination
with the European Banking Authority next year, form part of the
comprehensive assessment of euro area banks in advance of
the establishment of the Single Supervisory Mechanism (SSM)
in 2014.”

BSA is contingent on recovery of outstanding loans with provision for losses ( a topic requiring detailed analysis ) uneven at best across the credit institutional sector; while PRISM ‘extend and pretend’ methods provide false accounting data projecting full repayment of loans that will never be repaid in full.

On the macro level, all boats beached or in dry dock due to the above anomalies, may sail again should the economy grow by 4-5% annually. The CSO cheerleaders of over estimation will help.

ICB is promoting a tale of ‘pigs will fly’ and ‘economic turnaround’ instead of proposing a policy of debt write-down.

The policy is so inept it is beyond belief. It is the source of all propaganda fed to politicians unable to think for themselves, reliant on false advice from ICB they are as prone to macro policy mistakes as Fianna Fail were in the Bertie era.

At that time, the ICB failed in its prudential mandate to rein in the banks.

Let’s call this error by the ICB the ‘soft landing’ error. We were fed this by FF previous to financial meltdown following 2008; the current coalition of FB/LB feed us the same mantra emanating from ICB, ‘soft recovery’.

Dead cat bounce of the economy is no soft recovery.

Black is white

“2013’s GDP figures show contraction of 0.3%, but GNP grew by 3.4%” Word on the street is that lots of pharma patents are coming to an end and that further falls in GDP output from pharma will follow.

Another factor feeding into the ‘confidence’ boosting propaganda is the return to the markets and falling cost eg “Irish 10-year yields fall to new record low below 3 pct” This follows yesterdays Spanish bond sale news

dropping yield on Spanish bonds beneath 3.7%. It would appear the inflated issuance of debt by Central banks around the world through programs of monetary easing in the US is to be used to inject more liquidity into economically unstable peripheral countries of the EMU, irrespective of their real economic profiles.

There is no change to the underlying causes of meltdown in EMU peripheral countries other than commitment to inject more credit lending and bond issuance adding to already unstable burden of debt/gdp ratios in these countries.

Its interesting to analyse the dichotomy between the story from the financial markets, markets due to US QE are flush with money looking for a home; the local economy in Ireland still remains broken by debt cf above concerns above re SME sector along with the commercial and mortgage property sector; yet, through austerity and large exposure to commercial and private debt, ‘confidence’ abounds.

Where does this confidence come from?

Some of it comes from the Draghi inspired threat that ECB will purchase bonds of EMU countries if the markets will not do so. Due to QE there is a lot of money about and large institutional investors have worked it out that investing in risky EMU countries will prevent a calamitous market crash that could cost them dearly.

The problem with this scenario is that underlying structural weaknesses in EMU economies besieged with austerity are not being addressed. The rich become richer while the poor due to austerity become poorer. This is a hidden inflationary path where the true mushrooming of debt balloons into inflationary rising stocks and shares indices that bear no true relationship to underlying economic value.

Markets are primed for a severe adjustment downward of up to 50%.

Greater attention should be given to the role and supervisory framework of the ICB in relation to the development of the Irish economy. It reveals serious judgment errors and a lack of prudential management  that puts at risk the future development of the Irish economy.

ICB sits atop a large economic mess. Its role in the mess should be subject to far more critical analysis than has been provided by media in Ireland hitherto.



2 Responses to “The Irish Central Bank”

  1. Micky Macky said

    Excellent article. Black is white, and almost all our problems are the result of ICB incompetence, dictated by foreigners who stand to gain at the expense of the less well off.
    It is quite unbelievable that bank management still have their frequent all-expenses paid weekends, paid for by their banks, while laws were specifically introduced to assist them in screwing the lifeblood from the negative equity home owners. There is no mention of write downs for these people, let them eat cake, while we play our golf. There is no “Golden Rule” i.e. where everyone is equal under the law. The ICB stands guilty of perverse judgements and regulations that sold middle Ireland to the vultures, they should be held accountable for their blatant contempt of the the Irish people.

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