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Anglo
01 September 2010
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€4bn, €12.3bn, €14.3bn, €22.88bn – the cost of keeping Anglo Irish Bank afloat keeps going up and up. But when does it simply become unacceptable? Should we decide to wind Anglo down, and how might that be done?
“We need a banking resolution mechanism,” is the verdict of Brian Lucey, Associate Professor of Finance at Trinity College Dublin. “If you or I or a regular business is insolvent there is a method for dealing with that … [at the minute] there’s no set formula so there’s no way to do a straightforward wind-down of a bank.”
Enacting legislation for a banking resolution mechanism would be straightforward, Professor Lucey believes. “You could amend the UK act easily,” he says. “It’s a standard piece of banking legislation.”
He warns that the current situation could lead to Anglo’s depositors losing out. “As it is at the moment, if Anglo goes bankrupt depositors could end up taking the hit.”
Prof Lucey says a banking resolution mechanism would outline at what stage and in what proportion the various Anglo bondholders and creditor would be paid. He says that the bank should be wound down and doing this wouldn’t lead to a Lehman’s-like panic. “Lehman’s was a disorderly wind-down. We don’t want a disorderly wind-down.”
Instead he cites the example of HQ bank in Sweden, which had its banking licence revoked last week, as an example of use of proper banking resolution legislation.
He says that we must accept the money put into Anglo so far is gone, but that the time has come for others to start paying. “Tax-payers have paid enough; it’s time for the bondholders to take some pain.”
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