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Did an EU directive contribute to the banking collapse?


Shqiptar

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Joined
Mar 18, 2012
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6,309
We've been fed the line for some time that the principle reason Irish banks collapsed in 2008 was due to lax financial regulation by the Irish authorities. This has been the main justification for the foisting on the Irish tax payer of the massive losses incurred by the financial sector here.

Cormac Butler, writing in yesterday's IT begs to differ. In 2005, the EU implemented a directive based on the IFRS (International Financial Reporting Standards) which compels banks to hide losses on distressed loans until they are realised. You read that right; it doesn't just allow them to do this - it forces them. And it seems that the only central bank that sees a problem with this is the Bank of England which has issued proposals to resolve the issue.

A group of British-based pension funds is pushing to have this directive reversed and has contacted the relevant commissioner, Michel Barnier. It has warned him that the process by which the EU allows the concealment of these losses is contrary to EU company law and hopes for some progress on this issue under the Irish presidency. Those who framed the rules 7-8 years ago now admit that they were "overly complicated, rushed together in an inelegant manner and are not fully understood by anyone".

In 2008, our then finance minister Brian Lenihan was told that Irish banks were solvent. Lenihan was almost certainly not aware that the report reassuring him on this point concealed huge losses, owing to loopholes that the EU had created.

If the Bank of England’s proposals are taken on board, the EU may be forced to acknowledge that its contribution to the banking collapse here is rather more than it has hitherto admitted.

Source:
Bank regulation a worry for Ireland's legacy debt negotiations - The Irish Times - Fri, Jan 04, 2013
 

Iphonista

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Jun 6, 2012
Messages
4,200
I'm not sure I understand this. If the directive compels banks to conceal losses, then it's hardly a loophole they were exploiting. They were conforming to the spirit and letter of the law.
 

EUrJokingMeRight

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Joined
Sep 28, 2009
Messages
11,840
We've been fed the line for some time that the principle reason Irish banks collapsed in 2008 was due to lax financial regulation by the Irish authorities. This has been the main justification for the foisting on the Irish tax payer of the massive losses incurred by the financial sector here.

Cormac Butler, writing in yesterday's IT begs to differ. In 2005, the EU implemented a directive based on the IFRS (International Financial Reporting Standards) which compels banks to hide losses on distressed loans until they are realised. You read that right; it doesn't just allow them to do this - it forces them. And it seems that the only central bank that sees a problem with this is the Bank of England which has issued proposals to resolve the issue.

A group of British-based pension funds is pushing to have this directive reversed and has contacted the relevant commissioner, Michel Barnier. It has warned him that the process by which the EU allows the concealment of these losses is contrary to EU company law and hopes for some progress on this issue under the Irish presidency. Those who framed the rules 7-8 years ago now admit that they were "overly complicated, rushed together in an inelegant manner and are not fully understood by anyone".

In 2008, our then finance minister Brian Lenihan was told that Irish banks were solvent. Lenihan was almost certainly not aware that the report reassuring him on this point concealed huge losses, owing to loopholes that the EU had created.

If the Bank of England’s proposals are taken on board, the EU may be forced to acknowledge that its contribution to the banking collapse here is rather more than it has hitherto admitted.

Source:
Bank regulation a worry for Ireland's legacy debt negotiations - The Irish Times - Fri, Jan 04, 2013
We see this a lot.

So, who is resigning?
 

Boy M5

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May 20, 2010
Messages
21,731
PHP:
I have posted recently over to me the dire state of Irish financial journalism and after the SBP has in recent months seemingly been run by Ryanair's PR agency, I've stopped buying it.
This however, seems an excellent piece of journalism (like R Carswell)

However, I don't understand how this comes about in terms of EU rules. So I need have a think.

My understanding is:


International Accounting Rule IAS 39 requires banks to hold a bank book and a trading book.
The bank book is assets held to they mature and they don't have to mark them to market (that is show them in their balance sheet at current value).
The trading book is assets intended to be sold and therefore has to be marked to current market prices.

Entirely differently all banks must prudently mark down impaired loans. Furthermore the regulators must be told over significant impairments (solus or in aggregate).
This last point was part of the dialogue between the excellent Stephen Donnelly and Richie "Ballsbridge funder" Banker.
 

jpc

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Joined
Jun 14, 2007
Messages
4,339
I think that a huge negotiation card just fell on the table.
Given this revelation is correct or the context/interpretation is correct.
The bottom line appears to be that alarm bells were prevented from ringing in some overheated European property market
Has Noonan the balls to play that card?
Or will craven expediency be order of the day.
Bet the Spanish will!
 

Boy M5

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Joined
May 20, 2010
Messages
21,731
I think that a huge negotiation card just fell on the table.
Given this revelation is correct or the context is correct.
The bottom line appears to be that alarm bells were prevented from ringing in some overheated European property market
Has Noonan the balls to play that card?
Or will craven expediency be order of the day.
Bet the Spanish will!
My money is on the Spanish playing the card, Baldy, Enda and Gimmeemore tailgating then claiming it a gamechanger.
 

cabledude

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Joined
Jan 23, 2011
Messages
6,362
If this is true will it be a game changer. An actual game changer, unlike previous game changers.

Is this the silver bullet we needed to de-couple banking debt from our sovereign?
 

Shqiptar

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Joined
Mar 18, 2012
Messages
6,309
I'm not sure I understand this. If the directive compels banks to conceal losses, then it's hardly a loophole they were exploiting. They were conforming to the spirit and letter of the law.
Well, my understanding is that it was a loophole that had the unintended effect of compelling institutions to conceal bad loans. Of course given the fevered culture of those years before the crash, the bankers needed little compulsion to conceal losses and I doubt any of them wrote to the European Commission expressing concern about this. Why speak out when speaking out would hit one's own obscenely large bonus?
 

Shqiptar

Well-known member
Joined
Mar 18, 2012
Messages
6,309
I think that a huge negotiation card just fell on the table.
Given this revelation is correct or the context/interpretation is correct.
The bottom line appears to be that alarm bells were prevented from ringing in some overheated European property market
Has Noonan the balls to play that card?
Or will craven expediency be order of the day.
Bet the Spanish will!
As I read this, I was wondering: why the hell is this not being splashed across the front page of the IT in banner headlines - rather than being hidden away in the second half of an article in the inner pages of the business supplement? Even the title contains no clue or suggestion as to what has been written.
 

jpc

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Joined
Jun 14, 2007
Messages
4,339
Well, my understanding is that it was a loophole that had the unintended effect of compelling institutions to conceal bad loans. Of course given the fevered culture of those years before the crash, the bankers needed little compulsion to conceal losses and I doubt any of them wrote to the European Commission expressing concern about this. Why speak out when speaking out would hit one's own obscenely large bonus?
That is how the perfect financial storm got to start I suppose.
Bill Clinton helped it in the states with financial deregulation also.
 

jpc

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Joined
Jun 14, 2007
Messages
4,339
As I read this, I was wondering: why the hell is this not being splashed across the front page of the IT in banner headlines - rather than being hidden away in the second half of an article in the inner pages of the business supplement? Even the title contains no clue or suggestion as to what has been written.
Well given the Governments/Main Stream Journalism distaste for the likes of you and me having a chance to voice our wonderment at such omissions you have to wonder.
Those guys know whats important, right?
Steady on now, no story here move along we'll deal with it.
Yeah!
 

Shqiptar

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Joined
Mar 18, 2012
Messages
6,309
Well given the Governments/Main Stream Journalism distaste for the likes of you and me having a chance to voice our wonderment at such omissions you have to wonder.
Those guys know whats important, right?
Steady on now, no story here move along we'll deal with it.
Yeah!
Perhaps, jpc, they know us better than we know ourselves. I didn't plan this as a vanity thread but I can't help but notice that even in this supposed hotbed of scepticism, a thread dealing with Pre-Christian souls (!) is attracting a lot more interest.....!
 

ShoutingIsLeadership

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Jan 17, 2011
Messages
50,459
Perhaps, jpc, they know us better than we know
ourselves. I didn't plan this as a vanity thread but I can't help but notice that even in this supposed hotbed of scepticism, a thread dealing with Pre-Christian souls (!) is attracting a lot more interest.....!
Many 'serious' posters have withdrawn from P.ie. More threads like this (informative, well constructed), will see some return.
 

Windowshopper

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Oct 14, 2011
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9,011
There is something I don't understand why would the EU pass a directive which allowed banks to hid there losses (or am I reading the article incorrectly)
 

still-life

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Joined
Jan 30, 2009
Messages
450
As I read this, I was wondering: why the hell is this not being splashed across the front page of the IT in banner headlines - rather than being hidden away in the second half of an article in the inner pages of the business supplement? Even the title contains no clue or suggestion as to what has been written.

In fact, it's hard to believe that over the last 4+ years no-one else has recognised this.
 
D

Deleted member 17573

Why have we only just heard of this now?
At least in part because the incumbent government don't want to highlight anything - the truth about the initial guarantee ( remember the missing files? ), the pressure applied from Europe at various stages, or the Trichet letter - that might divert attention from FF's culpability for the financial crisis. They are putting electoral advantage ahead of the national interest.
What puzzles me, though, is why FF are keeping so quiet on these issues. I'm no conspiracist, but if I were I'd be wondering if there was not a mainstream party agenda to play along with Europe - and to hell with the Irish people.
 

ibis

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Joined
Mar 12, 2005
Messages
12,359
Why have we only just heard of this now?
Because now is the time for new straws to be clutched in attempting to get the EU to subsidise Ireland's bailout of Irish banks. The auditing practices in question don't change any of the conclusions with respect to Ireland's appalling regulation of its banks during the Celtic Tiger, because they're not part of its bank regulation law, but part of the law governing auditing of the banks' accounts as companies. Not only that, but there's legal doubt over whether the reporting conventions in question should ever have trumped the responsibilities of auditors under Irish company law in the first place - see here, for example.

Again, to make this work as a really good straw to clutch, you have to ignore the fact that an EU Directive applies to all EU countries, which makes it rather hard to claim that Ireland somehow suffered specially from its effects, and ignore the fact that banks are supposed to be regulated well beyond the stage of someone just looking at their audited accounts. You also have to ignore the fact that such audited accounts for 2008 wouldn't have been available in September 2008, and that audited accounts for 2007, with or without such rules in place, would probably not have shown massively over-valued assets or concealed risks to the loan portfolios. Adequate bank regulation, however, would still have shown both those things as looming risks based purely on the speed and concentration of the growth in the Irish banks' loan books, as well as taking into account the expressions of doubt that the accounting rules do not require putting into audited accounts.

The claim that the government might have been misled into a hugely costly exercise by the possible effects of these accounting regulations on the audited accounts of the banks only illustrates the appalling level of failure in banking regulation during the Celtic Tiger.
 
Last edited:

ON THE ONE ROAD

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Joined
Jun 20, 2005
Messages
4,546
We've been fed the line for some time that the principle reason Irish banks collapsed in 2008 was due to lax financial regulation by the Irish authorities. This has been the main justification for the foisting on the Irish tax payer of the massive losses incurred by the financial sector here.

Cormac Butler, writing in yesterday's IT begs to differ. In 2005, the EU implemented a directive based on the IFRS (International Financial Reporting Standards) which compels banks to hide losses on distressed loans until they are realised. You read that right; it doesn't just allow them to do this - it forces them. And it seems that the only central bank that sees a problem with this is the Bank of England which has issued proposals to resolve the issue.

A group of British-based pension funds is pushing to have this directive reversed and has contacted the relevant commissioner, Michel Barnier. It has warned him that the process by which the EU allows the concealment of these losses is contrary to EU company law and hopes for some progress on this issue under the Irish presidency. Those who framed the rules 7-8 years ago now admit that they were "overly complicated, rushed together in an inelegant manner and are not fully understood by anyone".

In 2008, our then finance minister Brian Lenihan was told that Irish banks were solvent. Lenihan was almost certainly not aware that the report reassuring him on this point concealed huge losses, owing to loopholes that the EU had created.

If the Bank of England’s proposals are taken on board, the EU may be forced to acknowledge that its contribution to the banking collapse here is rather more than it has hitherto admitted.

Source:
Bank regulation a worry for Ireland's legacy debt negotiations - The Irish Times - Fri, Jan 04, 2013

can we take legal action?
 
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