'STEP UP BANK SUPERVISION' CALL - The Government last night published its emergency banking legislation.
Patrick Honohan, Professor of International Financial Economics at Trinity College Dublin, has been reading the legislation.
Professor Honohan said about one in every three banking crises in the past had ended up with some sort of guarantee, so this was a 'fairly standard' solution.
He said that a deposit guarantee usually costs governments, as banks tend to become slightly more relaxed when market discipline is removed, and as a result take more risks. He added, however, that the taxpayer was always implicitly exposed to any troubles in the banking system.
Professor Honohan said this market discipline needed to be replaced by more intense supervision and prompt action when banks get into difficulties.
He said he the guarantee scheme should be a trigger for intensified supervision, critical scrutiny of what banks are doing and prompt intervention when there are signs of problems at any bank.
