Sir, – Barry Walsh's letter (December 24th) misrepresents the Central Bank's Economic Letter Profiling the Cross-Border Funding of the Irish Banking System by Dermot Coates and Mary Everett. First, it is not a Central Bank report; the paper notes the "views expressed are solely the views of the authors, and are not necessarily those held by the Central Bank of Ireland or the European System of Central Banks".
More importantly, the document specifies two important caveats to the analysis. The first concerns a compositional shift in the statistical reporting population. A number of banks active in the Pfandbrief (German covered bonds) market were considered as Irish headquartered banks for statistical reporting purposes, and formed part of the Irish data between 2002 and 2011. Many of these banks were European and their activities would not now be included in Irish data; however they were regarded as Irish banks for the purposes of this study.
The second caveat concerns the location of ultimate asset ownership, the so-called City of London effect. International data limitations prevent looking through the veil of transactions via off-shore centres and intra-group funding, and thereby partially distort the geographical profile of foreign borrowers. It means the study does not reflect the extent to which finance sourced by Irish banks in London, New York and from off-shore financial services centres may have originated elsewhere.
Mr Walsh also states the “Central Bank found just 1 per cent of foreign lending to our banks during the property bubble came from Germany”. The document states: “Germany was the source of approximately 11 billion or 25 per cent of total foreign funding at end-2002. Thereafter, absolute German funding fell quite quickly to . . . 1 per cent by end-2007”, a rather different thing. It also finds “Pfandbrief banks headquartered in Ireland accounted for nearly 80 per cent of this funding” and as noted earlier, the real nationality of these banks cannot be determined.
Also, while Mr Walsh mentions only lending by German and French banks, I (December 21st) explicitly cited lending by British banks as well. The document he quotes found the “interbank market in the UK was the primary source of wholesale funding for the Irish banking system”. Moreover, Mr Walsh’s letter missed the central point of my criticism of Mr Barroso’s refusal to consider retrospective funding for Irish banks. Mr Barroso’s justification for this position is that Ireland must pay the cost for the failure of its own regulatory authorities and the Irish banking system; the failed institution/country bears the costs of its failures. However, applying this logic to lenders who recklessly fuelled the property bubble here and therefore ended up with exposed loans would force these institutions and bondholders to carry the cost of these failed loans. Instead, Europe insisted all bondholders, including unsecured, unguaranteed bondholders, would be repaid by the Irish taxpayer. The Irish government gave in to these European demands, saddling the country with huge debt into the future.
The consequences of “foolish decisions made by Irish politicians and Irish voters” as Mr Walsh describes them, have indeed been imposed on the Irish taxpayer, but the usual outcome of reckless speculative lending has been spared the bondholders and banks who made them, regardless of their country of origin. – Yours, etc,
DONAL McGRATH,
Heathervue,
Greystones, Co Wicklow.