Account holders withdraw €23bn from banks this year
MORE than €23.5 billion of deposits have been withdrawn from the three major Irish banks since the start of the year. AIB says it has seen outflows of €13bn in deposits due to withdrawals by nervous corporate and business customers who fear for the Irish bank system.
The loss of faith in Irish banks was further highlighted recently as Bank of Ireland confirmed it suffered €10bn in similar withdrawals prior to the end of September 2010as big investors feared the guarantee on the banks might not be extended.
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When will banks learn that their primary responsibility lies with their depositors?
Perhaps more importantly, when will sovereign governments learn that they need a proper bank wind-up regime, one in which the only guarantee provided is to depositors (to allay depositor fears), but also they should take control of the banks' assets, and via this mechanism most of the costs of the depositor guarantee can be met by selling those assets. The costs to the sovereign, and thus taxpayer, are minimised. Only then, can whatever remains, be disbursed among bondholders and shareholders, the former facing severe haircuts, the latter probably wiped out.
The idea that bondholders should be bailed-out by sovereigns is absurd - they lent, lending implies risk, and in some circumstances, loss. The claim that this would destroy the bond market (without an implicit-cum-explicit taxpayer guarantee) is frankly, absurd. Bondholders and shareholders in banks should in future force far more transparency and risk-management rigor on banks, which is absolutely right - and they will only do this if they face severe losses NOW. However, with government bailouts, moral hazard is rewarded while gamblers-cum-bankers enjoy the fruits of their terrible management failures and the taxpayer picks up the tab. The european population is saying no, and I hope more deposits are withdrawn in order to force governments to force bondholders and shareholders to take the pain, to finally send the message to bankers that the failure is theirs and not the taxpayers'.
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