The Honohan Report on the Irish banking crisis

The Honohan Report entitled “The Irish Banking Crisis – Regulatory and
Financial Stability Policy 2003-2008” is a superbly written document. The
guarantee to include subordinated debt, the narrative on the page 123 is gripping in relation to the survival of Anglo Irish and the effects that its collapse might have on AIB and BoI. The discussion on “systemic importance” to the country in relation to Anglo is questionable but Professor Honohan is clear in his interpretations.

On Page 132 the sentence “So either Anglo’s disorderly bankruptcy had to be avoided, or protective measures taken for the rest of the system,or – as was decided – both” pithily sums it up.

And further on page 133- “still, given the perceived lack of a solvency problem at Anglo (or the other banks) on balance a guarantee seems to have
been the best approach, not least because no other clear and effective medium-term solution appeared available. This is not to underestimate the huge cost of the bailout which has ended up in excess of 15% of GDP.”

In my view the problem was that the consensus view that “no Irish bank should be allowed to fail in the sense of having to close its doors and not repaying depositors and other lenders.” was not the straight forward correct decision. It should have been nuanced and AIB and BoI, both of which are systemic in the common man’s parlance, should have been handled separately from Anglo Irish and Irish Nationwide Building Society.

The superiority of US law over Irish and UK law with regard to the allocation of losses of an insolvent bank is shown by the fact that since 1993, US law gives depositors priority over bondholders and general creditors in their entitlement to be paid first in a bank liquidation. No such distinction is embodied in law in Ireland or the UK.

Superbly Clear Exposition of the Crisis Timeline is set out in Annex 5.