Introduction to the Banking Crisis
The news that PTSB is putting itself up for sale serves as a reminder of the dark days of the bailout 15 years ago. The bank has hired investment bank Goldman Sachs to manage the process, with the sale expected to be completed in the first half of next year.
The Cost of the Bailout
The taxpayer put a total of €64.1bn into the Irish banks during the financial crisis. After exorbitant boom-time lending, Anglo Irish Bank and Irish Nationwide were in deepest trouble and the State had to put in €34.5bn into the crippled institutions. Unfortunately, only €1.1bn has been recovered to date, and the remaining €33.4bn is lost.
Bank by Bank Breakdown
The Bank of Ireland injection of €4.7bn has returned €6.7bn, and the bank is back in full private ownership for the past three years. AIB needed a bailout of €20.8bn to survive, with the sale of the last of the State’s shares earlier this year seeing the payback tab rise to €19.8bn. PTSB received a bailout worth €4bn in 2011, with close to 30pc of its mortgages in some kind of trouble during the financial crash. Thus far, it has repaid €2.8bn.
The Role of the Central Bank
A functioning banking sector is a vital aspect of any economy. The notion of the State effectively nationalising the banks was viewed as a socialist principle, until the failures of capitalism made it an all too stark reality. Returning the bailed-out banks to private ownership was always the goal, albeit with far more intense regulation than the light touch in operation during the Celtic Tiger days.
Opportunities and Challenges
There is an opportunity with the sale of PTSB to introduce more competition into the market, through the entry of a leading European bank. However, the role of the Central Bank is now being viewed as an obstacle towards achieving the best price from the sale of PTSB. The bank is awaiting a ruling on a technical issue around how much it can lend versus the amount of capital it has to keep on its books.
The Central Bank’s Decision
The Central Bank is right to continue keeping an extremely tight rein on how much PTSB can lend. However, the regulator can be criticised for taking too long to come to a decision. This also raises questions about why Finance Minister Paschal Donohoe has agreed to the sale at this time, presumably because he wants to cash in while markets are high.
Conclusion
The sale of PTSB marks the return to the private sector of the domestic banks that survived the 2008 financial crisis. The bank bailout ultimately cost €32bn, and the public picked up the bill. The cost to society from the collapse of the banking sector was enormous. As the banking sector continues to evolve, it is essential to learn from the past and ensure that the mistakes of the financial crisis are not repeated. The sale of PTSB is a significant step towards a more stable and competitive banking sector, but it is crucial to balance the need for profitability with the need for regulation and stability.
