Central Bank Reform Bill 2010

We all want ‘tough regulation’, I would argue it doesn’t need to be tougher, rather it needs to be more pragmatic and enforced, and of those two criteria enforcement being the greater.

The Central Bank Reform Bill 2010 is going to give God powers to the Central Bank/Financial Services Authority of Ireland. Essentially it sets out a framework whereby they can call all of the shots, right down to how companies promote people.

In Part 3 s20(2) they can determine either by their interpretation of title or their interpretation of a persons role, whether they have any controlling function, and if so they require CB/FSAI authority in order to do their job, this is an additional layer of HR activity that will be injected into financial services companies.

Part 3 s35(i) states that a function requires pre-approval if the CB/FSAI deem it to be so on grounds of ‘size or complexity’, yet they don’t state any parameters for same, meaning a mom & pop shop could fall under these rigours based upon the …

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Why banks support bangers

There have been headlines about the way that AIB underwrote certain loans to Liam Carroll, judge Peter Kelly is of the belief that the security may not be correct because AIB essentially gave him the money in early 2009 on the back of a personal guarantee and some other minor security.

Why would a bank do this? Especially as they were curtailing lending to every other sector of the market? Especially when they were being saved by the taxpayer and had just been bailed out? This isn’t to defend the banks, but to explain the reason why they acted in such a counter intuitive way, any right thinking person would be correct in assuming that they should have been trying to rein in developers, but that is the reverse of what they did, rather they extended more credit to the developer.

Explanation for this is simple, Carroll had brought AIB too far down the rabbit hole for them to turn around and pull the plug, a bank gets to a certain point with a …

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Who is really to blame for the crisis?

Today, buried on the inner page of the Independent Business section there was an article stating that an Oireachtas committee found that the responsibility for the financial crisis in Ireland was largely down to regulators and ratings agencies (the same agencies who down-graded Irish debt in 09′).

Sadly, it didn’t make massive headlines, nor will it… If you could get a picture of Sean Fitz, or some scandal element to tag on then it would be everywhere, but the humble work of one of the few independent studies done on the matter, lacking sex-appeal & scandal will be widely ignored by the public, meaning everybody will still only see ‘banks’ as the source of the problem rather than as the conduit, when in fact the source of the problem was the gatekeeper, the person with their hand on the tap of the conduit, who allowed credit to flow too quickly for too long.

I had coffee with a well known economist last April and we spoke about this matter, he felt that it was …

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Failed regulation in the Irish market

There are three broad benefits to regulation of a financial system.

Firstly, avoidance of negative externalities, often the societal costs of these outweighs the private cost and prevention is possible when a regulator is function well and doing their job correctly. They do this by preventing excesses, by promoting conservative risk management in the financial sector and helping to maintain confidence by ensuring (for instance) that a liquidity shortfall in one institution doesn’t spill over into others (i.e. avoiding multiple bank runs which take down well functioning solvent banks in their wake) resulting in a widespread credit crunch.

Secondly, to set solvency and reserve requirements for banks, at times there are significant asymmetries in information within the consumer/institution relationship, or worse still, information gaps (where both institution and consumer don’t have full information – as happened in the sub-prime loan market in the USA), when nobody can determine the quality and reliability of a financial product a strong regulatory environment will ensure that banks are in a position in which they can …

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The Criminal Justice (Money Laundering & Terrorist Financing) Bill 2009

The Main Purpose of the Bill is to:

•Identify and verify the identity of their customer and of any assets ultimate beneficial owner, and to monitor their business relationship with the customer; •Report suspicions of money laundering or terrorist financing to the public authorities, usually, the national financial intelligence unit; •Take supporting measures, such as ensuring proper training of the personnel and the establishment of appropriate internal preventive policies and procedures.

The 2009/Bill/Act will be applicable to Intermediaries – investment, mortgage and insurance and other investment/insurance businesses which are regulated by the Financial Regulator.  Going forward the term “Designated Body” will be replaced by the term “Designated persons”

The changes which the new Act will bring are:

•“Designated Persons” will be required to perform customer due diligence on a risk based approach. There will be 3 types of customer due diligence depending on the circumstances, (1) Simplified (2) Standard (3) Enhanced identification

•The following products are exempted from the requirements in relation to Customer Due Diligence: – Life Assurance policies with an Annual premium of not more than € 1000 …

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Inflation… ‘when’ not ‘if’…

The endurance of gold at above $900, rising oil prices, the weakening dollar and a Treasury/Fed combo that is increasing the money in circulation will lead us where?

I hate to harp on about inflation but it just doesn’t seem that further down the line we won’t see a lot of it, the market is pricing it in, the yield curve is suggesting it, and yet it remains on the periphery of commentary for the most part.

One important statement in this talk is the bit where one of the guys talks about the fractional reserve system and the multiplier effect that can turn 800+ billion into 8 trillion.

When we are advising longer term fixed rates to avoid the pain this will bring (and it won’t be in 09′, it will be 10′ or 11′ but rest assured it will come), bear in mind that in the short term you will pay more than you have to, but that when everybody else is hurting you will be insulated. The reason for fixing now rather than later is that the …

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Inflation… 'when' not 'if'…

The endurance of gold at above $900, rising oil prices, the weakening dollar and a Treasury/Fed combo that is increasing the money in circulation will lead us where?

I hate to harp on about inflation but it just doesn’t seem that further down the line we won’t see a lot of it, the market is pricing it in, the yield curve is suggesting it, and yet it remains on the periphery of commentary for the most part.

One important statement in this talk is the bit where one of the guys talks about the fractional reserve system and the multiplier effect that can turn 800+ billion into 8 trillion.

When we are advising longer term fixed rates to avoid the pain this will bring (and it won’t be in 09′, it will be 10′ or 11′ but rest assured it will come), bear in mind that in the short term you will pay more than you have to, but that when everybody else is hurting you will be insulated. The reason for fixing now rather than later is that the …

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How far are we down the rabbit hole?

How far into the credit crunch and liquidity crisis are we? Banking stocks would have you think that it’s all upwards from here on in but how can you be sure? The Regulators in the USA were prepared for 100 to 200 bank closures in the 12-24 month period from the end of 07′. Thus far we have only seen eight actually close.

The total amount of assets involved is €38 billion. That might not seem like much when talking about bankers money, but keep in perspective that its 38,000 units of a million, its twice the size of AIB, its more than all of the lending market in Ireland for the whole year of 2007. And of course this is just the portion that have gone under, the actual ‘writedowns’ that other banks are surviving are (when added together) much larger, which means that some banks are just better able to take their blows than others. The worrisome thing in some cases …

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