Timeline of a crisis laid bare in documents

ANALYSIS:THE ACCELERATING development of the international banking crisis and its arrival on these shores just as a bank-financed property bubble was bursting is recorded in the documents released yesterday.

On January 24th, 2008, a “scoping paper” was produced in the Department of Finance looking at how the State might approach a bank facing liquidity problems or becoming insolvent. The paper was written against the background of the run on Northern Rock the previous year in the UK.

As the year progressed, the international situation continued to deteriorate. In a report on Irish Life & Permanent, Morgan Stanley noted that, by August 10th, there was “limited appetite” internationally for lending to Irish banks.

By September 10th, the financial regulator Pat Neary was discussing the possibility of forcing banks to reduce lending so as to shore up their liquidity position.

On the weekend of September 13th and 14th, a planning session was conducted that involved personnel from the department, the Central Bank, the regulator’s office, and the NTMA.

The discussion included consideration of the run on Northern Rock and the need for clear and adequate communications in the event of the State taking control of Irish Nationwide. Designated staff would man the phones to deal with the concerns of depositors.

It would be important that everyone would remain calm. “Any perception that there is a chance that people will lose money risks precipitating a run.”

The officials looked at ways in which the Irish banks could help each other out and at how much liquidity assistance they could get from the NTMA. A draft Bill to take control of Irish Nationwide was being worked on. Outflows of deposits from the Irish banks were being monitored.

On September 17th, Minister for Finance Brian Lenihan was told there was a marked deterioration in the funding environment for Irish institutions.

The following day Anglo made a presentation to the department in which it said it was a highly profitable “old-fashioned” bank and that its loan book “remains strong”.

On the same day, the Minister met senior officials from his department, the Central Bank, the regulator and the NTMA and discussed the possible nationalisation of Anglo.

Meanwhile, Irish Nationwide chairman, Dr Michael Walsh, wrote to the department suggesting a merger between Anglo and Nationwide.

At a meeting on Thursday, September 25th, attended by the Taoiseach and Mr Lenihan among others, the regulator said there was no evidence Anglo was insolvent on a going concern basis. David Doyle, secretary general of the department, noted the losses in Anglo and Nationwide could be €8.5 billion and €2 billion.

By the following Monday night the Government had decided on a blanket bank guarantee on deposits that was so extensive the State could never pay it if it was called on.