Irish Government To Provide Additional Funds To Banking Sector

By: Mike Campbell

When many other governments are thinking about winding down their support to the financial sector and even selling off the positions that they were forced to take in the banks at the height of the financial crisis, the Irish government is having to pump further funds in. The Republic of Ireland is a member of the Eurozone and has announced that Anglo Irish Bank will require a cash injection of €5bn. Two other Irish banks, Bank of Ireland and Allied Irish Banks will receive €1.26bn and €1.88bn respectively. All of the banks will need to raise further funding themselves in the private equity market, but further tax-payer bailouts cannot be ruled out. The Irish bank regulator has indicated that additional funds are required to cover losses when so-called “toxic assets” are sold off. The toxic assets will be purchased by the newly established National Asset Management Agency, immediately nicknamed “the bad bank”, at a discount of 47%. The toxic assets have a face value of €16bn and many of them relate to deals in the Irish property market which has collapsed in the last two years, halving in value. Some €3bn has also been invested in UK property which has also seen a substantial downturn during the crisis.

The move is necessary to inject liquidity into the banking sector which has been reluctant to lend on the back of its own bad debts – but banks are in the business of lending and other businesses need money. The shortage of funding has caused a vicious circle in the economy that the government needs to break if Ireland is to enjoy the fruits of the recovery that now seem to be underway in markets around the world.