Below is the Central Bank Of Ireland's take on dealing with what it has just uncovered to be a busted banking system and imminent austerity measures. The PIIGS have just been rebranded to PIIIGS. Don't take our word for it: here is what the Irish Finance Minister just said:
IRISH FINMIN: INFORMATION REVEALED BY BANKS 'TRULY SHOCKING'
IRISH FINMIN: WE MUST STABILISE BANKING SYSTEM NOW
IRISH FINMIN: BANKS MUST REPAY DEBT BY FACILITATING RECOVERY
IRISH FINMIN: ECB TRICHET BACKS AUSTERITY MEASURES
As disclosed, Ireland has instituted a "Bad Bank" concept to acquire 1,200 loans, or €81 billion worth, at a 47% discount. Sounds about right. Of course, the US financial system still carries most of its loans at about par: you see we have a printer and they don't, so we can do whatever we want.
Here is the ICB's response to broad banking system insolvency:
The Financial Regulator has today (30 March 2010) published the results of its review of banking capital requirements for the next three years until 2012. New capital levels are being set for some of the main banks covered under the government guarantee to ensure that they can withstand future losses, even under very stressed conditions.
These measures are a long term solution and should ensure that Irish banks move to a strong capital position as soon as possible to speed their recovery and that of the economy.
A level of 8 per cent of core tier 1 capital to be attained by the end of this year is to be applied. This level of capital must be met after taking account of all future losses, from both NAMA and non-NAMA portfolios. This capital will be principally in the form of equity – a 7 per cent equity requirement. Equity is the highest quality form of capital, and the emerging international standard. In addition, further amounts, specific to each institution, are to be added on in the calculation of future loan losses. The new requirements also mean that banks cannot go below a level of 4% core tier 1 capital in a severely stressed scenario.
Speaking today, Governor of the Central Bank, Patrick Honohan said, “After a period of great uncertainty, these actions and announcements create a secure platform on which confidence will be built. While the costs that are today revealed are certainly significant, they are manageable and affordable for the Irish State. They are certainly a necessary measure to put the banking crisis behind us and provide for a stronger economy.”
Head of Financial Regulation, Matthew Elderfield said, “It is important that our banks move to a strong capital position as soon as possible and that we draw a line under the Irish banking crisis. Sufficient capital is an essential ingredient to ensure that banks can withstand future losses. We have applied a robust, realistic and prudent capital standard informed by our own detailed analysis and by emerging best practice internationally.”
The capital requirements set by the Financial Regulator must be in place by the end of 2010. The institutions will be required to submit recapitalisation plans to the Financial Regulator within 30 days.