How much of deficit is going to banks?

Tim Robbins

Of the 18 billion deficit, how much of that is going to bank bailouts? How much going to Nama? Thanks.

antoobrien

Tim Robbins wrote: »

Of the 18 billion deficit, how much of that is going to bank bailouts? How much going to Nama? Thanks.

To NAMA nothing - it's funded using bonds that are raised against the value of the loans that it owns. There have been other threads on the funding model of NAMA, I suggest you search for them to get a more detailed explanation.

To the banks - well that depends on what set of books you look at and whom you believe. According to Eurostat, the full impact of the promissory notes was accounted for in our deficit in 2010. If you look at the exchequer returns they account for a promissory note payment of 3.1 billion in 2011.

Either way, this year, thanks to the "footwork" around the promissory note earlier this year, we are not scheduled to pay anything to the banks.

Geuze

The banking crisis has so far cost the State 62.8 bn. This was spread over several years, so it affected the Budget Balance in several years.

We borrowed about 40-45 bn of this cost.

The rest we paid for by selling other public assets, mainly from the NPRF.

Blowfish

As far as I remember it, Irelands current interest repayments are approx €8 billion, with somewhere between a quarter and a third being interest on the bank bailout, the rest being our own sovereign debt.

Tim Robbins

Thanks to all. I have being googling this for a while. I can't believe with all the talk about the bank bailouts, deficit it's so hard to get an accurate figure for how much it is costing us - every year.

meglome

Tim Robbins wrote: »

Thanks to all. I have being googling this for a while. I can't believe with all the talk about the bank bailouts, deficit it's so hard to get an accurate figure for how much it is costing us - every year.

This article might be helpful

If we do a simple counterfactual and magic away the €62.5 billion we have pumped into the banks, the projected deficit for 2012 would fall from €13.6 billion to €12.8 billion or 8.0% of GDP. Eliminating the effect of the bank payments would knock 5% off the deficit; 95% of next year’s deficit is not related to the bank payments.

There are many claims that the expenditure cuts and tax increases are being introduced to “bail out the banks”, “repay bondholders” and the like. The changes are being introduced to bring about the necessary reduction in the budget deficit. There may be disagreements about the make-up of the changes but 95% of the problem there are trying to address is not as a result of the money we have handed over to the banks.

http://economic-incentives.blogspot.com/2011/11/deficit-and-banks.html

antoobrien

Geuze wrote: »

The banking crisis has so far cost the State 62.8 bn. This was spread over several years, so it affected the Budget Balance in several years.

We borrowed about 40-45 bn of this cost.

The rest we paid for by selling other public assets, mainly from the NPRF.

I'd question the we borrowed 40-45 billion bit, considering the actual amount put in is about 20 billion (we have not paid all the PN, so we have only paid the interest on the 1/2 payments that we have made)

Geuze

From Seamus Coffey's blog, indicating that the increase in debt due to the banking crisis was 41.4bn.

antoobrien

Geuze wrote: »

From Seamus Coffey's blog, indicating that the increase in debt due to the banking crisis was 41.4bn.

That includes 9 promissory note payments that we haven't made yet (something of the order of 28 billion IIRC).

Here's a list of the payments that have been made (taken from the exchequer statements:

Year|Non-Voted Capital Expenditure|Amount € bn|Running Total € bn
2008|None|0.000000|0
2009|Anglo|4.000000|4.000000
2010|INBS|0.100000|4.100000
2010|EBS|0.625000|4.725000
2011|IL&P|2.300000|7.025000
2011|Promissory Notes|3.085000|10.110000
2011|Bank Recapitalisation Payments|5.268147|15.378147
2011|Contribution to Credit Resolution Fund|0.250000|15.628147
2012|None|0.000000|15.628147

n..b. not sure what "Contribution to Credit Resolution Fund" is but what the hell, let's stick it in there because €15.37 billion just looks too small. And if we want to be really anal about it we can throw in another €280m paid in 2011 to the "Loans to Insurance Compensation Fund"

Scofflaw

Tim Robbins wrote: »

Thanks to all. I have being googling this for a while. I can't believe with all the talk about the bank bailouts, deficit it's so hard to get an accurate figure for how much it is costing us - every year.

Part of the problem, I think, is that to some extent you're asking the wrong question. We're not "paying bank debt" on an ongoing basis - that is, you won't find a figure that simply represents money going from public finances to pay bank debt, because that's not something that actually happens. The general public belief that some part of our deficit is the result of this happening is simply wrong.

Instead, money from public finances was put into recapitalising the banks, which is to say providing them with enough capital to meet regulatory requirements and to have the collateral to borrow in order to roll over their debts while they deleverage (reduce the size of their balance sheets).

So there's no simple number representing "payment of bank debt by the State", although it's easy to believe there's one because of the fuss made about bond repayments. The state is not making those bond repayments, though - they're being made by the banks, mostly by borrowing, and what they're using as collateral for that borrowing is the money the state put into them. The banks are mostly rolling over their debts by borrowing from the ECB using State-provided collateral, including the famous promissory notes, and occasionally reducing them through asset disposals.

So, as a couple of people have said, the cost to the State on an annual basis is (a) the interest costs of the borrowing the State has done to date to put capital into the banks, and (b) the annual fulfillment of the promissory notes.

The latter don't form part of our official deficit, though, because the full cost of the promissory notes was taken onto our official deficit in 2010. So from an accounting perspective they're already added to our debt, and no longer appear on our deficit, although the cost of them still has to be met annually.

The interest costs are, in fact, low, as has already been noted. So the idea - firmly lodged in many people's minds as far as I can see - that if we weren't "paying back bank debt" we'd somehow be shot of the deficit and the need for austerity, is almost entirely false.

cordially,
Scofflaw

paddy0090

The bank debt is not enough to make the difference. Eventually the money we put into them will have to be repaid or rolled over. But it will have to be repaid.

Our debt profile would be much better if we'd never bailed out the banks. Spains is better ....fat lot of good it does them. That said, a major collapse could have left the country in a far worse position now(though I disagree). We could've followed the UKs bank resolution mechanism but we still wouldn't have been able to devalue the currency as they have.Even without the blanket bailout I think ther would have been some form of bailout. Which means we'd be maybe 30bn better off. Again not enough to make the difference in my opinion.

later12

The answer is really very little on paper.

However, there is a notional, contingent cost to the state of having guaranteed and taken on the banks which cannot be counted, but which costs the state heavily in terms of reputational costs, which seriously affects consumer and investor confidence.

If the only cost to the state were the recapitalisations & interest payments, we'd be laughing. As with most things in life, it's not quite that simple.

Scofflaw

later12 wrote: »

The answer is really very little on paper.

However, there is a notional, contingent cost to the state of having guaranteed and taken on the banks which cannot be counted, but which costs the state heavily in terms of reputational costs, which seriously affects consumer and investor confidence.

If the only cost to the state were the recapitalisations & interest payments, we'd be laughing. As with most things in life, it's not quite that simple.

On the other hand, those costs aren't measurable, and there would also have been reputational and confidence costs resulting from not bailing out the banks.

regards,
Scofflaw

gerryo777

Scofflaw wrote: »

Part of the problem, I think, is that to some extent you're asking the wrong question. We're not "paying bank debt" on an ongoing basis - that is, you won't find a figure that simply represents money going from public finances to pay bank debt, because that's not something that actually happens. The general public belief that some part of our deficit is the result of this happening is simply wrong.

Instead, money from public finances was put into recapitalising the banks, which is to say providing them with enough capital to meet regulatory requirements and to have the collateral to borrow in order to roll over their debts while they deleverage (reduce the size of their balance sheets).

So there's no simple number representing "payment of bank debt by the State", although it's easy to believe there's one because of the fuss made about bond repayments. The state is not making those bond repayments, though - they're being made by the banks, mostly by borrowing, and what they're using as collateral for that borrowing is the money the state put into them. The banks are mostly rolling over their debts by borrowing from the ECB using State-provided collateral, including the famous promissory notes, and occasionally reducing them through asset disposals.

So, as a couple of people have said, the cost to the State on an annual basis is (a) the interest costs of the borrowing the State has done to date to put capital into the banks, and (b) the annual fulfillment of the promissory notes.

The latter don't form part of our official deficit, though, because the full cost of the promissory notes was taken onto our official deficit in 2010. So from an accounting perspective they're already added to our debt, and no longer appear on our deficit, although the cost of them still has to be met annually.

The interest costs are, in fact, low, as has already been noted. So the idea - firmly lodged in many people's minds as far as I can see - that if we weren't "paying back bank debt" we'd somehow be shot of the deficit and the need for austerity, is almost entirely false.

cordially,
Scofflaw

On top of what we borrowed, how much from the pensions reserve fund went into these bankrupt institutions?

later12

Scofflaw wrote: »

On the other hand, those costs aren't measurable, and there would also have been reputational and confidence costs resulting from not bailing out the banks.

There would indeed.

My point isn't that we shouldn't have bailed out the banks. I'm probably reasonably isolated in my view that not only were the Government of the day right to guarantee with wild abandon, they were right to guarantee Anglo. That's neither here nor there.

The point is that it was expensive, and it does have a reputational and contingent cost that we must not discount when assessing the cost of the bailout of the Irish financial system.

Scofflaw

gerryo777 wrote: »

On top of what we borrowed, how much from the pensions reserve fund went into these bankrupt institutions?

Another slightly tricky one. The NPRF appears to have put nothing into Anglo, but has put quite a bit into AIB/BOI, neither of which are actually bankrupt, and in BOI's case, not even nationalised:

The Directed Portfolio consists of public policy investments in Allied Irish Banks and Bank of Ireland that were undertaken on foot of directions from the Minister for Finance. Since 2009 the Fund has invested €20.7 billion in preference shares and ordinary shares in the two banks, including €10 billion in July 2011, comprising Bank of Ireland €4.7 billion (where the Fund’s shareholding is 15.1 per cent) and Allied Irish Banks €16.0 billion (where the Fund’s shareholding is 99.8 per cent).

They have made some money back on the BOI shares:

The Fund has received a total of €1.8 billion in cash from Bank of Ireland preference share dividends, the repurchase of warrants by the Bank and the sale of ordinary shares to a consortium of private investors.

And the value of the shares is considered to be €5.518bn.

So the gross figure for money put in is €20.7bn, while the net looks more like €13.382bn.

cordially,
Scofflaw