Ireland should temporarily take over its banks rather than set up a so-called bad bank to buy risky loans, according to Charles Dumas, director at Lombard Street Research.
The government’s proposed National Assets Management Agency “could ultimately lead to a weakening of the banking sector,” Dumas said today in a speech to the American Chamber of Commerce in Dublin.
The planned agency will buy as much as 90 billion euros ($123 billion) of property loans from banks in a bid to cleanse the financial system of its toxic debt. Finance Minister Brian Lenihan has said he’ll buy the loans at a discount to help get banks lending again.
“By taking over all real estate and construction loans from the banks, it effectively reduces the banks to shells, given the importance of property-based lending in normal banking,” Dumas said. “Full nationalization of the banks” may be a better approach, he added.
Ireland’s economy is shrinking at the fastest pace in the euro region, unemployment is soaring and the government has increased taxes to control a widening budget deficit.
Lombard Street Research is a London-based company founded in 1989 to provide economic forecasts.
To contact the reporter responsible for this story: Louisa Nesbitt at firstname.lastname@example.org
To contact the editor responsible for this story: David Merritt in London at Dmerritt1@bloomberg.net