Paper for ISI Congress, Dublin 2011 Describes banking interventions in Ireland

1. Paper for ISI Congress, Dublin 2011 • Describes banking interventions in Ireland • Treatment in National Accounts (ESA95/MGDD) • Specific methodological issues

2. Chart 2:Irish Government Deficit

3. Chart 1:Irish Government Debt

4. Methodological issues • Guarantees • Capital injections into publicly owned banks • Classification of units (bad banks) • Re-routing of transactions

5. Government guarantees • Off-balance sheet contingent liabilities or • Government Debt

6. EU Government guarantees linked to the financial crisis (end March 2011) Source: Eurostat

7. Government guarantees • SNA93/ESA95 • Guarantees contingent liabilities • Exceptionally in the MGDD can be Government Debt • SNA08/ESA10 • Standardised guarantees • One-off loans still contingencies but

8. Government guarantees Para 17.212 of SNA: “As an exception, one-off guarantees granted by governments to corporations in certain well-defined financially distressed situations and with a very high likelihood to be called are treated as if these guarantees are called when the financial distress is recognised”

9. Capital injections into public units • SNA93/ESA95 • Injections to cover accumulated losses – Capital transfer • Other injections as owners – Equity • SNA08/ESA10/MGDD • Injections to cover accumulated losses – Capital transfer • Other injections as owners – Equity or capital transfer, depending on expected return. SNA08 less prescriptive than ESA10/MGDD which looks for a sufficient rate of return

10. Classification of public units • Private /Public control • Concept more refined in new SNA/ESA, but still judgemental. • Market/Non-market • Also more refined in new SNA/ESA. ESA still more prescriptive (50% rule)

11. Classification of publicly controlled bad banks within EU • Private /Public control? • Under very restrictive conditions, financial corporations controlled by Government may be classified outside of General Government Sector if majority privately owned • Only during the financial crisis

12. Classification of publicly controlled bad banks within EU • Market/Non-market • Application of ESA 50% rule to financial corporations difficult • Bad bank - Defeasance structure or MFI? • In ESA, MFI’s based on list maintained by ECB for statistical reporting and Eurosystem operations

13. Classification of publicly controlled bad banks within EU • Market/Non-market • Old bank in run down mode may have banking licence and be on MFI list (Anglo) • Newly established bad bank may not have banking licence (Northern Rock) • ECB MFI list used for statistical reporting but also Eurosystem • Comparability may be improved by re-routing transactions so classification becomes secondary

14. Summary • During financial crisis the scale of government interventions in banks very large • Borderline cases - Inconsistencies in recording of capital injections and in classification of units. • Effort to improve transparency of reported data especially by Eurostat • New SNA08/ESA10 does not fully resolve problems. Economic reality the key but can be difficult to implement