List the consequences of allowing banks to fail.

David Mc Williams has suggested an alternative to NAMA -* let the banks go bust*, he says.

So I was wondering if it might be possible to compile a very clear list of the consequences of allowing the Irish banks go bust. I’m looking for short bullet points that Joe Soaps like myself can easily follow. Each new bullet point starting on a new line.

If anyone has posted in this regard on another website, don’t bother post the same thing again here. In a day or two, I’ll attempt to compile all the suggestions into one list.

  • Bondholders and shareholders would be wiped out.

  • Debt would be liquidated and firesales would ensue. This would in turn attract a lot of foreign investment when it comes to commerical real estate.

  • New banks would be set up and the poison in the financial system would be flushed out.

ATMs might stop working for a few days. I think there would be a significant panic. It would be like going to war there could be loads of unintended consequences. Like Rumsfelds ‘unknown unknowns’.

I’d still prefer it to NAMA mind.

credit would disappear - thus most business would die.

Mid to long term economic cost of the loss of credit would massively outstrip the short term savings of bank defaults.

Ireland would be set back countless years.

We need to be very clear here. There is a significant difference between an individual bank failing and the demise of the entire banking system.

If we lost even an AIB or BoI, the deposits are guaranteed by the State, so much of the deposit base will move to other banks, making them stronger (some cash will undoubtedly end up doing a Bertie and reside under mattress). Secondly, the banks have latterly had a State guarantee on their borrowings. So that would would be covered too.

Certainly for businesses who use the defunct institution for lines of credit it would be a difficult few days/weeks while they transferred their accounts. But I can’t see widespread commercial collapse. Remember we’ve had long running bank closures here before as a result of industrial action.

That said, where an “Irish” bank to actually fail, I wouldn’t be too surprised if a significant foreign/international bank swooped in and made a “white knight” offer to the share holders to take it over and recapitalise it. Not surprised at all.

Our political class seem overly concerned with retaining the word “Ireland” or “Irish” over the doors of financial institutions here and perhaps exerting some ‘personal’ leverage.

Blue Horseshoe

Anyone with half a brain does all they can to get the hell out of the country.

u wanna play those high stakes poker tables…

one word - long story, massive economic cost.
Lehmans

It would be like the American System. The Bank and their Branches would close at the week end - all the Signs would be taken down. The new system would come in and they would change the name to Eire Bank or whatever. The Banks Deposit Accounts would be Guaranteed by the Central Bank. They would be the New Takeover Bank or be taken over by the Central Bank Temporaly or be told to Amalgamate with another Bank. The Assetts that were kept as security against the Loans would be Liquidated and whatever they could be sold for realised and go to the Central Bank or the New Good Bank.

We would trade away with whatever Banks were left. Transfer our Accounts or whatever. I would trade away with the Credit Unions - their only disadvantage is that they use the Large Banks as their Clearing Banks. I don’t think they would fail as such - they would be Taken over or forced into an Amalgamation, nothing much to see.

  • The government would have to make good on the guarantee and would fail. Ireland would default.
  • Huge proportions of the professions, financial services and all the businesses serving them would be wiped out.
  • Ireland would experience a brain drain.
  • The “old money” families would rise to the top as their wealth piles of would increase hugely in value. They are the least leveraged. They would discuss the plight of the peasants with the judges in Fitzwilliam Tennis Club.
  • Debts would be sold at a discount to debt collection agency who would call in every on demand or short term loan to the point of bankruptcy. Many people who are currently serving property debts from their personal income would be bankrupted.
  • There would be a huge increase in marriage break ups due to stress.
  • Huge swathes of the public service would be fired on an arbitrary basis.
  • The 10% of journalists who keep their jobs would be happier.
  • Irish women would stop wearing fake tan, would let their hair grow curly, would drop the hem-lines, would cut the gym membership and would start eating more crap food. Irish men would have more time for sport and would become more svelte.
  • Racism would surge.
  • Muggings would surge.
  • There would be some great bands penning songs born out of misery. We’d dance and drink and scr-w cos’ there’s nothing else to do.
  • The English will feel the world has been put to rights and the upstarts have been put back in their box.
  • The great middle class would be destroyed as we reverted to upper and lower class.
  • There would be less equality of opportunity as pressures to work and fees drive students out of full time education.

You’ve misread the title of the thread.

Here it is: List the consequences of allowing banks to fail.

What you posted should come under: List the consequences of NAMA, bail outs and public spending and borrowing.

Were you not paying attention to Frank Fahy, those furrin banks coming in here are the reason we’re in this mess to begin with, you can’t be going letting them buy up oirish banks as well.

Lets just hang on that for a minute.
The root of the problem, as far as taxpayers are concerned, the self inflicted (Sorry FF inflicted) bank guarantee.
IMHO

Same with NAMA.

Using the guarantee you could stage manage each bank going to the wall. It would cost billions to do but is certainly worth doing the numbers on. As Mc Williams himself puts it:

twitter.com/davidmcw

Great thread - makes my mind up that NAMA is better than Banks failing.
That though is like saying being in a coma is better than being dead.

Government would fail and we would have Kenny in charge.
Hmmmmm… Kenny or NAMA. God, what a choice!

consequences:
Shareholders lose everything: lots of squealing
Uninsured subordinated debt holders lose money but not all
Run on banks: withdrawals limited to a few grand per month per customer
Non-performing loans marked down and sold at a fraction of face value.
Mortgage book and other performing loans and liquid assets disposed of over a couple of months leaving plenty of money to pay depositors and senior debt holders in full
New banks occupy branch networks
Lots of temporary disruption and 9/11 style panic period during changeover
RTE reports use of IOUs and barter hark back to old bank strikes
The new banks operate with clean balance sheets, chastened by recent history
Irish government debt more highly rated than before as it has no more scary bank bailout liabilities
A slew of commercial and housing developments some half finished is dumped on the market and sold at a huge discount.
Property prices and rents fall to their floor. Like a stone.
Irish business become far more competitive as their office costs plummet.
Very low prices for FTBs but regulator won’t let them borrow more than 3x income.
We still have a 30bn deficit problem to deal with but we don’t have that extra 70bn of NAMA borrowing, so we’re not bankrupt.
The previous land bubble in Ireland was 30 yrs ago so next bubble due in 2039 when everyone has forgotten this one.

Here is one consequence - We get this thing over with fairly rapidly in contrast to NAMA and the its long term economic toilet talk.

Bravo…

Mass unemployment straight away 25% plus.
Mass Bankruptices straight away.
Ireland would become a very low Cost

Bottom because fo the low cost base within 2 years

I fail to see how bankrupt banks would lead to debts being called in immediately. The normal examiner/liquidator process would apply. The creditors would have their chance to run the business or liquidate it. Either way, banks would continue to function. Why? Because it is in the interests of the creditors to maximise the value they have, that is, a functioning bank.

It would certainly cripple lending and it may be that the government have to step in, possibly through the credit unions?, and provide emergency lending, but an orderly solution to the banks is in the interests of creditors most of all.

Bullshit. Is this the sort of hysterical rubbish the Irish Times and all the other Property Porngraphers are going to resort to in a desperate attempt to make the myhome.ie punt pay off?

Crooked property developers, banksters and their associated lackies in Dáil Éireann might be well advised to f*** off, but the rest of the country could I’m sure adjust to a new clean banking system in relatively short order. F*** the bondholders.

What happens to the deposits?

Nate