A leading Irish economist has said a massive injection of funds by Government and NAMA will not mean more credit or bank loans.
Patrick Honohan, Professor of Economics at TCD, told the MacGill Summer School that fixing Irish banks is 'not going to solve all our problems'.
He said there is a risk of disappointment because 'it is not just a matter of pouring in money one end and expecting it to come out the other in the form of loans'.
'The injections that the Government are making are more about rebuilding the cushion of capital that protects the depositors and other creditors against future risks,' he said.
'It is more about that than making cash available for loans,' he added.
Regulator says approach has changed
He said Government help would help banks raise additional loanable funds and help reduce bank managements’ levels of anxiety and fear, and thereby restore some of their willingness to make loans.
However, he added that banks still will not want to lend to poor projects.
He also said that - because it will largely be Government money that is at risk - the general public should not want banks lending to poor prospects.
In the context of budgetary constraints and An Bord Snip Nua, he added that few would 'be advocating budgetary grants to be given to loss making firms that do not have much hope of survival'.
'A bank loan given to a no hope firm by a largely state-owned bank is in essence a budgetary grant,' he said.
'Fixing Irish banks is not going to solve all our problems. The collapse in the public finance - and the knock on effect of that in compressing domestic demand - will still be a factor as will the downturn in economic demand,' he added.
Dukes critical of Anglo probe delay
Former Fine Gael leader and current Anglo Irish Bank director Alan Dukes has criticised the Director of Corporate Enforcement for delays in the investigation into his bank.
Speaking at the MacGill Summer School in Donegal, he called for the investigation to be concluded as soon as possible.
Mr Dukes said he found it odd that the director said he might be in a position to tell the Director of Public Prosecutions there was a legal case in November, after he announced last February there was a prima facie case for an investigation into the bank, and after sending people in to the bank in April to begin the inquiry.
Currently, Angle Irish Bank is involved with three separate sets of investigations by the Office of the Director of Corporate Enforcement, the Financial Regulator and the Chartered Accountants Regulatory Board's complaints committee.
Sell assets to cut debt - McCarthy
The Government needs to sell off assets it does not need to reduce debt, economist Colm McCarthy told the MacGill Summer School in Donegal this evening.
Mr McCarthy chaired the group appointed to review public spending, known as An Bord Snip Nua.
Speaking about his group's report, Mr McCarthy said asset disposal was needed nationally to reduce debt, along with increases in private saving.
Speaking about the options available to the Government, the economist said the Government had to either cut spending or increase taxes because of 'unsustainable' debts of €400m every week.
He pointed out that this debt, which amounts to 11% of GDP, does not include bank rescue costs. Mr McCarthy said bank rescue costs could add an extra two years' borrowing, and could cost €20 billion to €30 billion.
Mr McCarthy said borrowing needs to be contained in 2009 and reduced in 2010, and that means cuts in current and capital spending. Also, Mr McCarthy denied that individual Government departments were targeted in his report, and said that no area of current spending was exempted.
Change banking culture - Boyle
Green Party chairman Senator Dan Boyle earlier told the school there was a need to change the ethical culture of banking. Senator Boyle said there was a need to end the 'no shame, no blame culture' of banking.
He said we had learned that much of the financial services sector could not be trusted to engage with ethical norms of behaviour, but that some self-regulation was needed. Senator Boyle said there needed to be an international component to our internal regulatory system, and a need to learn from best international practice.
He said more openness and transparency was needed on how banks conducted their businesses and, to some extent, a return to the cautious conservatism that previously characterised banking.
Senator Boyle said what had happened to Irish banking was down to a failure to regulate, and that he hoped that prosecutions would be made. He added that recent legislation on corporate governance and director responsibility did not go far enough.
