The proposed National Asset Management Agency (Nama) will fail in its bid to create healthy banks even if it works exactly as the Department of Finance anticipates, UCD economist Morgan Kelly told an economic conference in Kenmare, Co Kerry, today.
Mr Kelly said that even if the default rate on the €77 billion in loans being transferred to the Government's planned "bad bank" was 20 per cent or less and the long-term value of the assets was 70 per cent of the size of the loans, as envisaged by the Department, Nama would not succeed.
"Nama has turned from a recapitalisation into a partial and inadequate liquidity support," he said, speaking at the Dublin Economic Workshop's annual conference.
"Nama was supposed to be revitalising the banking system. We were putting a lot of money in, admittedly, but the banks were supposed to be able to stand on their own after a couple of years. These guys would be fit as fleas, they'd be off the ventilators. But even if Nama goes through perfectly, the banks are going to have huge outstanding borrowings which they really have no chance of repaying on their own."
Mr Kelly the banks would need ongoing state support and "forbearance" from the European Central Bank (ECB).
The economist said the assumptions in the Government's draft business plan for Nama, which was published on Wednesday, were all "at the extreme upper tail of optimism", which posed additional risk. "When you have every assumption like that, you no longer have a forecast, you have a fantasy."
Also speaking in Kenmare today, Pat Farrell, the chief executive of the Irish Banking Federation (IBF) apologised on behalf of the banking system for its role in the economic crisis. "We built opacity and complexity into the banking model which truth be told defied understanding," Mr Farrell said.
"For these omissions and failures, I unreservedly apologise."
Mr Farrell added that the supervision of banks was weakened by the setting up of the Financial Regulator in 2003, because under its auspices too great an emphasis was placed on giving personal finance advice to consumers while monitoring the health of the banks was too low on its agenda.
"When push came to shove at the height of the financial crisis, what were people worried about? It was 'is my money safe' not 'I don't know what a tracker mortgage is'," he said, referring to a slogan from a Financial Regulator television advertisement.
Meanwhile, banking expert Pat Ryan said the Ireland's overdependence on cheques and cash and underuse of electronic payments compared to other EU states was estimated to cost the economy €1 billion a year.
