Crusading against bankers can generate oodles of publicity for politicians.

But the latest campaigns include proposed laws riddled with measures which could do the opposite of what is intended.

In fact the biggest losers could be taxpayers and home owners in arrears.

Paschal Donohoe, the Minister for Finance, reluctantly agreed to new legislation which would see vulture funds, which buy mortgages, being regulated by the Central Bank.

According to analysts the unintentional winners from this new law, proposed by Fianna Fáil's Michael McGrath, could be vulture funds themselves.

Stockbroker Davy said: "Far from having their 'wings clipped' the acquiring funds - so called 'vulture funds' in the public narrative - may instead pay a lower price for non-performing loan purchases. This therefore is negative for the banks and by extension, the State as shareholder."

AIB, which is selling buy-to-let and commercial loans, is 71% State owned. Permanent TSB, controversially selling 14,000 owner occupier loans in arrears, is 75% State owned.

Since the end of January the value of shares in both banks have fallen, wiping €2.5bn from AIB and €100m from Permanent TSB. Davy said: "We largely attribute this to the negative political backdrop."

The European Central Bank said the legislation was being put forward "without the benefit of a thorough economic impact assessment."

It is important not to lose sight of home owners in arrears whom politicians have rightly tried to protect.

If Permanent TSB fails to sell its loan book there is the threat that the bank will have to reduce its non-performing loans itself. This could see an acceleration in repossessions, which could leave borrowers even more vulnerable.

Mr McGrath said: "Currently these funds, who would be prospective purchasers, are completely unregulated and beyond the control of the Central Bank. That is untenable. It is unacceptable."

Vulture funds have an awful reputation. They only have themselves to blame.

They refused to appear before the Oireachtas Finance Committee instantly adding to politicians' mistrust. They have few friends in the political system or in the media.

When journalists probe their activities some funds prefer to threaten legal action rather than answer straight questions.

The vulture funds are US private equity companies which buy distressed assets at low prices with a view to selling the mortgages at a higher price after a few years.

For homeowners in difficulty the funds' first instinct is frequently to escalate an issue to legal action when other solutions are available.

The funds' primary aim is to turn a profit. But because they have purchased mortgages at significant discounts in some instances, they can write off some of a borrower's debt - something banks are reluctant to do for fear of encouraging borrowers to default.

A second proposal, put forward by politicians, which could hit the banks, is reducing their ability to write off historic losses against the tax on future profits.

Superficially this seems fair.

Irish banks benefited from a gross €64bn bailout courtesy of the Irish taxpayer.

Fianna Fáil’s Sean Fleming, chairman of the Public Accounts Committee, said: "Now they are getting a second bailout by not having to pay corporation tax."

The first problem is that the committee's measure would hit all banks, including foreign players, which never got a bailout from the Irish taxpayer.

To distinguish between Irish and foreign institutions would fall foul of EU rules.

Secondly, Permanent TSB and AIB are majority State owned. So the bulk of the profits accrue to the taxpayer anyway.

The policy is to sell the State's shares over the coming years.

Limiting the ability of both banks to write off losses against tax will reduce the value of those shares. That too will have negative consequences for the State.

It is open season on bankers after the tracker mortgage debacle.

But it is important for politicians to bear in mind that fortunes of the banks and the taxpayer are joined at the hip.

Punishing bankers sometimes has unintended consequences.


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