Electronic Assignment Cover sheet

Students Number :

Maria Petronela Toma


Magdalena Maria Grzes


Course Title:

MSc International Banking and Finance

Lecturer Name:

Enda Murphy

Module/Subject Title:

International Financial Institutions and Markets The Global Financial Crisis – Impact on Banks and Regulation

Assignment Title:

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Abbreviations ...................................................................................................................................... 3 The Global Financial Crisis – Impact on Irish Banks and Regulation ....................................................... 4 1. Introduction .................................................................................................................................... 4 2. The impact on Irish banks ` liquidity, profitability and solvency .................................................... 5 3. The managerial shortcomings in banks and the deficiencies in bank regulation ......................... 9 4. Irish Government Interventions in Financial Markets .................................................................. 12 5. Conclusions ................................................................................................................................... 14 References ........................................................................................................................................ 15 Appendices........................................................................................................................................ 18


The Global Financial Crisis – Impact on Irish Banks and Regulation Abbreviations AIB Anglo ATM BIS bn BoI CB EBS ECB EU FR GDP GNP IL & P IMF INBS NAMA OECD Allied Irish Bank Anglo Irish Bank Automated Teller Machine Bank for International Settlements billion Bank of Ireland Central Bank of Ireland Educational Building Society European Central Bank European Union Financial Regulator Gross Domestic Product Gross National Product Irish Life and Permanent International Monetary Fund Irish Nationwide Building Society National Asset Management Agency Organization for Economic Co-operation and Development 3 .

this economic miracle being widely admired and emulated (Central Bank. 2009a). p. 1). The main retail banks in Ireland are Allied Irish Bank (AIB). Introduction The economy of Ireland has changed in recent years from an agricultural focus to a modern knowledge economy and transformed itself from one of Europe‟s poorest countries into one of its wealthiest. 2009) Nearly 15. 4 .The Global Financial Crisis – Impact on Irish Banks and Regulation 1. into a cold sea of uncertainty” (The Irish Times. 2009. AngloIrish. 2009). 2009). earning itself the nickname “Celtic Tiger” (The Guardian. The boom started in the late 1980s and brought rising investment and growth in employment and household formation. Bank of Ireland. Permanent TSB and Bank of Scotland (Ireland). Ulster Bank. a Irish Times editorial stated that: “We have gone from the Celtic Tiger to an era of financial fear with the suddenness of a Titanic-style shipwreck. their share prices started to slide steadily after March 2007.000 financial service providers are authorized by the Irish Financial Regulator with over 80 authorized credit institutions (Financial Regulator. 20-21) Once with the 2008 global financial crisis. 2010. Despite denials by the banks that they faced any difficulties. National Irish Bank. (Kelly. even luxury. The collapse of the building boom left Irish banks facing large losses to builders and developers. p. thrown from comfort. the Irish economy has been one of the worst-hit euro-zone economies due to the high exposure of the banking sector to the property market and the boom associated with that over the recent history (Mayer Brown. The crisis came to a peak on 29 September with a run in wholesale markets on the most aggressively expansionary of the Irish banks. In early January 2009.

Banks can become insolvent if they suffer big losses on their assets (mortgages. and by using the money markets for short-term borrowing. In other words. 2010. and deficiencies in bank regulation.121). thus never had to deal with liquidity problems. profitability and solvency The Basel Committee of Banking supervision defines funding liquidity as the ability of banks to meet their liabilities.The purpose of this paper is to investigate the global financial crisis in Ireland and the impact it had on its banks and regulation. P. liquidity refers to banks‟ funds. Solvency is the ability of a business to have enough assets to cover its liabilities. funds that mostly consist of customer deposits and various bonds and which are used for their daily operations. unwind or settle their positions as they come due (BIS. loans or government bonds) and are obliged by law to hold certain reserves of capital in order to avoid insolvency. have contributed to the financial crisis. Irish banks. had no difficulty in accessing any short term funding needed. A bank manages the risk that too many of its lenders will look for their money all in the same time by holding cash reserves. the following section shows the extent to which the global financial crisis has impacted bank liquidity. According to the Governor of the Irish Central Bank (Central Bank. 2. The fourth section presents the Irish Government interventions in financial markets to stabilise banks and prevent disorderly failures and the last part summarizes the findings and provides a conclusion. for fifty years. but starting with August 2007. The third section analyzes the extent to which managerial shortcomings in the Irish banks. 2008). The paper is divided in five sections: the first part briefly presents the economic context. profitability and solvency in Ireland. and 5 . such as filling ATMs or issuing loans. The impact on Irish banks ` liquidity.

although a Liquidity Group was established by the Central Bank in early 2008 to obtain information on liquidity developments from the main credit institutions and to identify any potential problems at an early stage. 6 . p. Reflecting their good performance. Anglo Irish Bank was the most vulnerable but the Central Bank considered the problem essentially one of liquidity rather than of solvency.” (IMF. the major Irish banks receive upper medium to high-grade ratings from the international ratings agencies. with Irish banking sector profits amongst the highest in Western Europe. In the following paragraphs. some liquidity concerns emerged. During 2008. According to Honohan. the main difficulty is determining whether the bank is solvent or not. Before the 2008 crisis hit.5) Starting with 2007. Governor Honohan also argues that putting a solvent but illiquid bank into bankruptcy is an unnecessary cost for the society. the situation of the profitability. as risk aversion and uncertainty rose. However. In 2006. 116-117) In early September 2008. the diminishing access of banks to liquidity became the urgent focus of attention for Central Bank. (Central Bank. IMF stated: “Financial institution profitability and capitalisation are currently very strong.especially with the events of September 2008. the liquidity situation deteriorated. and this is when emergency liquidity assistance from the central bank becomes necessary. a comprehensive picture of the actual liquidity flows had not been put in place before early 2009. as reflected in the unprecedented recourse to financing from the European Central Bank which rose from a monthly average of around €6 billion in September 2007 to €20 billion in September 2008. but they were not considered major threats to the banking system. liquidity and solvency in the three most problematic Irish banks is discussed. the access of banks worldwide to short-term borrowing became very constrained. 2010. there were no major concerns about the health of the banking sector. 2006.

The bank reported at the end of March 2010 a €17. when the Irish government announced plans to inject €1. 2010) bringing its cumulative loss to €30. Since 2009.5bn of capital for a 75% stake in the bank.4 billion since October 2008. (Central Bank. and in order to avoid insolvency and collapse. At the beginning of July 2011 the legal merger of the INBS business into Anglo took place. 2008) Anglo and Irish Nationwide Building Society experience liquidity issues and therefore are entirely dependent on the Irish central bank for future funding via its Emergency Liquidity Assistance program (see Table 2 in Appendices). which. 2010. The 2010 result reflected a loan impairment charge of €19. Anglo has been making important losses.7 billion loss. (The Telegraph. As a result of the losses.162) In just a month. the largest in Irish corporate history (Reuters. p. the bank was nationalized in December 2008. but according to Fitch Ratings Anglo„s long-term rating at A+ remained stable. helped by a substantial reliance on wholesale funding. the situation of the bank changed entirely with the fall of the property market and the wholesale funding market dislocation. leading to the bank`s nationalisation in January 2009. Anglo has been heavily reliant on capital support from the Irish government. (Standard & Poor.6 billion gain on the repurchase of its own hybrid securities (see Table 1 in Appendices). Anglo stated that the economic environment would remain significantly challenged.Anglo Irish Bank Anglo is a property-focused commercial lending bank that accumulated more than €100 billion in assets by September 2008.8 billion operating profit that came largely from a one-time €1. according to Standard & Poor (2011a) clearly exceeded Anglo's €1. 2011a) In August 2008 Anglo Irish Bank released an Interim Management Statement that was in line with expectations that the company`s earnings would rise 15% for the full year to September 30th.3 billion. 7 .

saw a marked outflow of wholesale deposits. Standard & Poor`s (2011b) calculated the bank`s pre tax loss at €3. which were generally in line with expectations of pre-tax profits of just over €1. (Central Bank. 161162) By the end of 2008.3 billion for the first half of 2008. the situation of AIB`s profitability reversed. Through the crisis time. but the bank announced it expects earnings per share to decline by 8-10 percent instead of the previous growth.442 million for 2010. and access to liquidity from the monetary authorities. According to Moody`s (2009) the 2008 operating profit after provisions for impairment was reduced by 62% to 862 million euro.6% on the same period of 2007. compared with an underlying pre tax loss of €2.Bank of Ireland Over the past years Bank of Ireland's performance has also been severely affected by the consequences of the sharp falls in property prices. the general dislocation of the wholesale funding markets. BoI has benefited from significant government support: capital injections. like many domestically owned Irish banks. Moody`s saw a weakening trend in AIB`s 8 . up 8. S&P expects BoI's earnings through 2011 and 2012 to continue to decrease (see Table 3 and Table 4 in Appendices).839 million for the nine months to end2009. AIB In August 2008. Standard & Poor`s (2011b) states that the liquidity support was most evident through the third and fourth quarters of 2010 when BoI. AIB released the results for the first half of the year. and specifically weak investor appetite for exposures to Irish banks. 2010. compared to 2007. the purchase of BoI's weakest property-related loans by the National Asset Management Agency. Even with the weakest loans having been transferred to NAMA and anticipating a continued tight focus on operating expenses.

Hosono. at worst. AIB and Bank of Ireland came under pressure from analysts to match the profits and growth of Anglo Irish. The managerial shortcomings in banks and the deficiencies in bank regulation As capital adequacy and risk management go to the core of the operations of a bank. Takeda. 2006). The two large retail banks.79) These requirements are reflected in the Basel Committee on Banking Supervision„s principles of corporate governance for banking organizations (BIS.23) 9 . In Ireland. The best example of mismanagement of Irish financial institutions was Anglo Irish Bank. reducing the bank`s loan to deposit ratio at the end of 2008 to 142% from 158% in 2007. (Kelly. Hosono (2010) this resonates in the Irish context as poor governance was a contributory factor to the situation which emerged in the case of Anglo Irish Bank in 2008 and early 2009 prior to and subsequent to nationalisation. p. (Moody`s 2009) 3. assuming that prices could only go on rising or. the ability of directors to understand the internal governance of banks is critical in order to exercise sound judgment about the affairs of the bank. the management of all banks lost awareness of the riskiness of their portfolios. Takeda. which decreased in 2008. AIB`s liquidity was impacted by its growing reliance on market funding.profitability and a neutral trend in its liquidity. According to Kostyuk. p. 2010. (Kostyuk. which may further lead to a liquidity crisis or trigger a bank run. 2009. which through aggressive property lending had gone from an insignificant merchant bank in the 1990s to the joint-second largest bank by 2007. stabilise. The Basel Committee emphasised that poor corporate governance risk may lead to the bank losing market confidence.

a board meeting of IL&P accepted the resignation of two senior IL&P executives. FitzPatrick transferred the loans to another bank prior to year-end audits. the loan to FitzPatrick and Bradshaw reached €87 million but the transfer resulted in the accounts showing only about €40 million outstanding to directors. Although the Irish financial regulatory system was perceived as robust and modern. Grant Thornton Corporate Governance Review (2009) gives a few examples. Following a discussion with the Minister for Finance. (The Irish Times. From 2000–2008. as financial authorities failed to prevent this behaviour. therefore causing "Loans to Directors" to be understated. In 2008. directors of AIB and IL&P were also the directors of four other Irish listed companies. 2009b) Moreover. Hosono. all resigned in December 2008. following the revelation of a loan scandal (RTE. CEO David Drumm. FitzPatrick and Bradshaw took out loans in order to purchase Anglo Irish shares. Patrick Neary was pressured into resignation in January 2009. 2010.The chairman Sean FitzPatrick. Anglo-Irish Bank lent €4bn to Irish Life & Permanent (IL&P) for 1 day as an inter-bank loan. p. The head of the Financial Regulator. the Irish banking crisis has brought to the surface its shortcomings (Kostyuk. a related concern is the practice of Irish directors to hold a number of simultaneous directorships in major companies. which was recorded as a customer deposit. of which the Chairman of Anglo Irish Bank who was a director of four other Irish listed companies. and a subsidiary of Irish Life placed a deposit of a similar amount with Anglo. Nyberg (2011) considers that the Central Bank and the Financial 10 .81). this practice being inappropriate at times of crisis. On 12 February 2009. Similarly. Takeda. instead of €150 million. 2008). and board member Lars Bradshaw of Anglo Irish Bank. details of a further controversial transaction misrepresenting the accounts of Anglo-Irish Bank became public.

2011. The funding strategy of Anglo was obvious from its balance sheet and the concentration to the more speculative part of the market was generally known.vii) According to Nyberg (2011). the corporate governance issues at Anglo Irish Bank and the facilitation of the transfer of the loans to other credit institutions suggest that the threat of enforcement by the Financial Regulator was too weak. 11 .Regulator was aware of the risks but appear to have judged them insufficiently alarming to take major restraining policy measures. where the belief in a soft landing was consistent and probably continued up until and including the crisis management phase.” (Nyberg. In addition. p. “The problems in Anglo and INBS in particular.36). p. neither the Central Bank nor the Department of Finance seem to have considered the implications of a possible interruption in the flow of foreign funding. written by the Central Bank and the Financial Regulator. Similarly. Secondly. the OECD (2009) suggested that excessive lending growth was tolerated by the Irish Financial Regulator despite very high asset growth being a well-established predictor of banking difficulties. were not hidden but were in plain sight of the FR and the CB. 2009. An OECD report suggests that the supervisory issues that contributed to the Irish banking crisis were two-fold (OECD. the OECD suggested that the Irish Financial Regulator failed to recognise the full impact and the riskiness of the decisions taken by each financial institution. INBS‟s expansion into development lending was also clearly documented and the governance problems in the bank were widely known by the authorities. The Department of Finance and the Minister for Finance were regularly provided with a Financial Stability Report. Firstly. Nyberg (2011) considers there was a general state of denial in the Central Bank. report that did not warn about the serious risks the banks could face because of this bubble.

Liabilities covered initially amounted to €352 billion. 84).4. the Irish Government advertised a state guarantee that intended to save the Irish banking system. (Cussen and Lucey. The State covered liabilities include retail and corporate deposits.000 per qualifying deposits per institution. p. The Irish state covered under the deposit protection scheme for banks and buildings societies form up to a maximum of €100. interbank deposits. in Appendices) (Cussen and Lucey. creating an entity to manage impaired assets. The Irish State guaranteed for the deposits. p. covered bonds and. in Appendices) (Nyberg. subject to certain restrictions. 2011. Since 2009. 77). 83). senior unsecured debt. Capital injections: In late December 2008. These have included guaranteeing the Irish banking sector. 2011. the Irish Government decided to support a recapitalization program for credit institutions through the National Pension Reserve Fund. nationalizing and restructuring distressed banks. which was equivalent to almost three times the value of Irish GDP (Cussen and Lucey. p. up to October 2011. senior debt and dated subordinated debt of participating Irish credit institutions for the period until 29 September 2010. Irish Government Interventions in Financial Markets Since September 2008 the Irish Government has had to intervene significantly in the banking sector in a myriad of ways. and providing capital injections (see Table 5. the Irish authorities have provided the banking sector with capital injections amounting to €64 billion. State guarantees: In September 2008. subordinated debt (see Figure 1. 2011. 2011) 12 .

Allied Irish Bank and Bank of Ireland.Total: €0. p. capital injections to Anglo and INBS totaled €25. 82).Total: €7.9bn (0. 2).Total: €3. the Irish Government announced a further government initiative concerning establishing an asset management company.5% of GDP) Bank of Ireland .25% of GDP) Irish Nationwide Building Society .4bn (3.5bn (2.3 % of GDP) Allied Irish Bank (AIB) .4 billion (Cussen and Lucey. During 2010. p. the Irish State had provided €64 billion of capital to the six Irish banks. The Agency has acquired portfolios of property loans from banks operating in Ireland in return for issue of Irish government bonds to the banks. Public ownership of banks: By the end of July 2011. 85).5% of GDP). 2011. followed 13 . 2010.Total: €5. EBS Building Society . 2011. p. 95 per cent of which were guaranteed by the Irish Government (Cussen and Lucey. Anglo was the first bank to pass into public ownership. as of 28 January 2011. In January 2009.3bn (29% of GDP) as follows: Anglo Irish Bank -Total: €29. The largest capital injections were provided to Anglo and INBS. European Commission (2011) summed the capital injections into Irish banks during the crisis. with capital injections of €3.2bn (4. to €46.5% of GDP) National Asset Management Agency (NAMA): In early 2009. These government bonds are intended to enable Irish banks to access liquidity and provide credit to the Irish economy over an extended period of up to ten years (NAMA. These large capital injections mean that most of these banks are now owned by the State. The purchases would be funded by NAMA issuing debt securities.5 billion each. the National Asset Management Agency.3 billion and €5.3bn (18.In 2009 the Irish State provided two Irish banks.

and at the end of 2010 by AIB (Cussen and Lucey. The authorities were obliged then to take unpopular measures in order to safeguard the Irish banking system. Although the crisis had been building for 18 months. injecting billions in some banks from the taxpayer`s “pocket”.in the middle of 2010 by EBS and INBS. because of the fear that they will lose the race towards higher profitability. at any point. The fear of losing the entire business was somehow forgotten and replaced with the “fear” of not taking enough advantage of the infinite opportunities to make huge profits that were on the market. At the beginning of 2011 Anglo and INBS merged into a single company renamed the Irish Bank Resolution Corporation (IBRC). They lost liquidity. The financial institutions were blinded by success. 5. 2011. p. Conclusions During the boom years the Irish banks experienced continuous growth and profitability. but the group thinking and herding. 14 . the government and financial regulators appear to have been taken entirely by surprise. followed after September 2008 by a free fall. went from huge profits to huge losses and some were even threatened with insolvency. which were common amongst banks. 87). made them not see the risks they took as threatening. The purpose of any business is to make profit by taking risks. and we think that none of them wanted to even take in consideration the risks.

The Economic Adjustment Programme for Ireland.centralbank.org/publ/bcbs122. 2011. Central Bank. Dublin. M.eu/economy_finance/publications/occasional_paper/2011/pdf/ocp76_en. Available: http://ec.pdf [9 November 2011] 6.pdf [9 November 2011] 2. Liquidity Risk: Management and Supervisory Challenges [Online] Available: http://www. Financial Regulator. 7. ISEQ Corporate Governance Review 2009. Cussen.ie/publications/Documents/Treatment%20of%20Special%20Bank%2 0Interventions%20in%20Irish%20Government%20Statistics. Dublin: The Financial Regulator.pdf [9 November 2011] 15 . Available: http://www. 2006. Cork: Central Statistic Office. 2009.pdf [9 November 2011] 3.grantthornton. European Commission. [Online] Available: http://www. Basel Committee on Banking Supervision Enhancing corporate governance for banking organizations [Online] Available: http://www. Basel Committee on Banking Supervision.pdf [28 October 2011] 5. BIS. Annual Report of the Financial Regulator 2008. Central Bank. Grant Thornton. Grant Thornton. A Report to the Minister for Finance by the Governor of the Central Bank. Treatment of Special Bank Interventions in Irish Government Statistics. and Lucey.org/publ/bcbs136. The Irish Banking Crisis Regulatory and Financial Stability Policy 2003-2008. M.ie/db/Attachments/Publications/Public_interest/Grant%20Thornton%20Cor porate%20Governance%20Review%202009. 2011.europa. BIS. Dublin. 2009.References 1. 2008.bis. 2010. 4.bis.

Available: http://www.irishtimes. Report of the Commission of Investigation into Banking Crisis in Ireland. P. Available: http://www.ie [29 October 2011] 16.. F.ucema. 2010.pdf [9 November 2011] 9. Dublin [Online] Available: http://www.8.ucd. A.bankinginquiry.mayerbrown. National Asset Management Agency (NAMA). Credit Opinion: Allied Irish Banks.com/focus/2010/namaguide/index. RTE. [Online] Available: http://www.ie/news/2008/1218/fitzpatricks.html [8 November 2011] 15. [Online] Available: http://www.aib. 2009. [Online] Available: http://www. International Monetary Fund.pdf [9 November 2011] 10. Available: www. Hosono K.ar/u/ra/Books_and_Contributory_Chapters_in_Edited_Books__/Contributory_Chapters_in_Edited_Books/Apreda_-_StateOwned_Banks_in_Latin_America_-_Edited_by_Kostyuk. 2009.edu. Nyberg.N. 2010. Anti-crisis paradigms of corporate governance in banks: a new institutional outlook. UCD Centre for Economic Research.ie/servlet/BlobServer/document. Takeda. The National Asset Management Agency: A Brief Guide.com/london/article. 2009.irishdeposits. Irish Deposits. Mayer Brown. Chairman of Anglo Irish Bank Sean Fitzpatrick has resigned in a controversy over directors' loans.asp?id=7851&nid=369 [8 November 2011] 13. 2011. 11. 2006.gov.32. Morgan.ie/Guarantee_schemes [8 November 2011] 12.pdf?blobkey=id&blobwhere=125267695903 0&blobcol=urlfile&blobtable=AIB_Download&blobheader=application/pdf&blobheadernam e1=Content-Disposition&blobheadervalue1=document. 2008.rte.pdf [1 November 2011] 16 . Summary of Government Interventions in Financial Markets Ireland. Financial Sector Assessment Report.ie/t4cms/wp09. WP09/32. The Irish Credit Bubble. plc. Kostyuk. Guarantee Schemes. Misjudging risk: Causes of the Systemic Banking Crisis in Ireland. Moody`s.. [Online] Available: http://www. IMF.pdf [9 November 2011] 14. Kelly. [Online].

2010.17. Available: http://www. 2009b.reuters.html [9 November 2011] 17 .5bn-into-banking-sector-and-takes-control-of-Anglo-Irish.irishtimes. Standard & Poor`s. Ratings Direct: Anglo Irish Bank Corp.irishtimes. 1 January 2009 [Online].com/newspaper/breaking/2009/0213/breaking12.guardian.co. Available: http://www. Available: http://www.com/article/2010/03/31/us-angloirishbank-idUSTRE62U38C20100331 [9 November 2011] 19.5bn into banking sector and takes control of Anglo Irish [Online] http://www.com/focus/2009/oecd/index. The Irish Times. The Telegraph. OECD Economics Surveys: Ireland 2009 [Online] Available: http://www. No time for whingers. Ltd.com/newspaper/opinion/2009/0103/1230842387565. Ireland pours €5.uk/finance/newsbysector/banksandfinance/3899326/Ireland-pours5.bankofireland. OECD.uk/business/2009/jan/18/ireland-economy-crash [6 November 2011] 24.co. 2009. 2009. Why the party’s over in Ireland.pdf [9 November 2011] 18. 18 January 2009 [Online]. [Online] http://www. Available: http://www. 2011a.ie/Investors/Credit_Ratings/S_P_updates_its_research_on_Anglo_Irish_Ban k. Ratings Direct: Bank of Ireland [Online] Available: http://www. Statement by Irish Life & Permanent [Online].html?via=rel [7 November 2011] 23.irishtimes. Standard & Poor`s. 2008. Anglo Irish Bank posts Ireland's biggest ever loss.html [6 November 2011] 22.pd f [9 November 2011] 21. 2009a.telegraph. Reuters. The Guardian.com/fs/doc/wysiwyg/Report%20on%20Bank%20of%20Ireland. 2011b. The Irish Times.pdf [9 November 2011] 20.ibrc.

Appendices Table 1: Anglo Irish Bank Corp.3 265.9 85. 2011a 10.7 0.3 102.7 68.5 1.3 1.0 97.5 0.7 150.4 0. Asset Quality. Profitability Ratios -Year-ended Dec.1 134.5 2006 0.9 84.8 other real estate owned Net nonperforming assets/customer loans plus other 24.7 real estate owned Loan loss reserves/gross nonperforming assets Loan loss reserves/customer loans New loan loss provisions/average customer loans Net charge-offs/average customer loans Customer deposits/funding base Total loans/customer deposits Total loans/customer deposits plus long-term funds Customer loans (net)/assets (adjusted) Source: Standard & Poor`s.4 164.1 14.7 179.9 21.3 0. Ltd.7 67.6 2008 1.1 61.3 36.1 0.5 0.7 17.0 88.1 0.0 71.3 2007 2.2 0.3 128.1 56.1 326.1 (0.8 93.0 60.2 88.9 0.2 28.4 144.9 18 .5 Gross nonperforming assets/customer loans plus 45.3 2007 0.1 Table 2: Anglo Irish Bank Corp.1 35. 31(%) 2010 2009 29.8 2006 1.9 0.3 0.6 2008 2.1 95.9 161.2 66. Funding and Liquidity Ratios -Year-ended Dec.0 70.0 20.7 2009 1. Ltd.4 100.0) 61. 31(%) Net interest income/average earning assets Net interest income/revenues 2010 0.

2011a (14.0 46.7) 22.8 real estate owned Loan loss reserves/gross nonperforming assets Loan loss reserves/customer loans New loan loss provisions/average customer loans Net charge-offs/average customer loans Customer deposits/funding base Total loans/customer deposits Total loans/customer deposits plus long-term funds 39.779.4 163.5 70.8 (5.4 (309.9 10.8 1.4 5.7 0.3 22.1 0.9 26.1 Gross nonperforming assets/customer loans plus 10.7 2007* 1.8 109.6 0.2 16.2 (21.3 (457.8 39.5 1.4 (0.0) (56.2 Table 3: Bank of Ireland Asset Quality.5 36.5 39.0 (3.3 158.7 19 .3 57.2 173.1 56.1 30.Fee income/revenues Market-sensitive income/revenues Personnel expense/revenues Noninterest expenses/revenues New loan loss provisions/revenues Pretax profit/revenues Tax/pretax profit Noninterest expenses/average adjusted assets Pretax profit/average common equity Source: Standard & Poor`s.3 9.9 0.3 4.0 52.6 183.4 0.0 113.2) (14.511.1 108.6 40.6 134.2) 0.838.4 6.5 0.0 0.5) 15.2 3.5 0.3 4.9 0.0 158.3 8.1 2006* 1.2 0.9 0.9 3.3 0.8 39.7 2.3 22.9 2008* 4.8 124.1 1.2 51.6) (1.5 1.3 0.5 18.7 other real estate owned Net nonperforming assets/customer loans plus other 6.6 16.2 6.3 1.6 47.3) 10. 31(%) 2010 2009¶ 10.9 45.5) 0. Funding and Liquidity Ratios -Year-ended Dec.2 4.5 27.692.1 13.4 0.1 0.8) 40.3 19.3 68.8) 28.

0) 6. 2011b Table 4: Bank of Ireland Profitability Ratios -Year-ended Dec.8 38.6 35. N/A—Not applicable.2 1.1 (4.3 1. N.9 1.6 2006* 1.5 11.7 39.7 5.8 loss 23.3 *Financial year ended March 31 of the following calendar year.0) (109.5) 32.680.3 (103.3 15.8 1.6 provisions/loan loss provisions Net operating income after loan loss (120.--Not meaningful.A.2 19. ¶Nine months to Dec.7) 29. N.--Not available.9 13.8) 1.3 75.5) 19.0 (1.1 0.6 (9.7 54.1 50.9 provisions/revenues Pretax profit/revenues Tax/pretax profit Core earnings/revenues Core earnings/average adjusted assets Noninterest expenses/average adjusted assets Core earnings/average risk-weighted assets (33.0 (0.0 89.2 0.9 15.8) 1.7 30.9 2009¶ 1. 2009.7 6.2 157.1 N.Customer loans (net)/assets (adjusted) 73.5) 30. 31(%) Net interest income/average earning assets Net interest income/revenues Fee income/revenues Market-sensitive income/revenues Personnel expense/revenues Noninterest expenses/revenues New loan loss provisions/revenues Net operating income before loan 2010 1. Ratios annualized where appropriate.8) (1.0 2008* 2.6 65.4 45.1) (92.6 0.4) 35.0 55.4 2007* 1.7 78.9 (69.M 20 .1 43.M. 31.3 53.5 902.4 71.4 50.8) 30.3 12.2 71.1 1.0 62.5 2.2) 585.2 155.7 (5.3 115. Source: Standard & Poor`s.3 8.1) 35.4 (0.8 72.5 0.M (1.9 71.8 41.0 N.8 70.6 1.

0) (22.875 bn €5. These are: €179.99bn for 2008. 2011b Table 5: Timeline of Irish Government interventions in the banking sector Date Event 2008 Guarantee of the banking sector 2009 Nationalisation of Anglo Irish Bank 2009 Capital injections into BoI 2009 Capital injections into AIB 2009 Capital injections into Anglo 2010 NAMA established 2010 Capital injections into Anglo 2010 Nationalisation of EBS and INBS 2010 Capital injections into EBS 2010 Capital injections into INBS 2010 Restructuring of Anglo and INBS 2010 Capital injections into AIB Source: Cussen and Lucey.60bn for 2009 and €155. N.5 18.8) (76.7) (81. 81 Amount €352 bn guaranteed nil €3.6 *Financial year ended March 31 of the following calendar year. 2011.6 3.1) 30.Core earnings/average adjusted common equity Pretax profit/average common equity (%) (76.8 30. ¶Nine months to Dec. p.6 31.M.2 2.4 28.6 (0.99 bn for 2010. 21 . 31.5) 4. €160.--Not available.5 bn €3.5 bn €4 bn €28.5 Nil 2.4 1 The % of GDP calculations are calculated by reference to the GDP of each year.4 Nil 0. 2009.--Not meaningful Source: Standard & Poor`s.3 bn nil €0.7 bn % of GDP1 191. Ratios annualized where appropriate. N/A—Not applicable.2 2.7 Nil 2.4 bn nil €3.6 16. N.A.7 bn guaranteed €25.

4% InterBank Deposits. €15. 77 22 . €12. 33% Customer Deposits. 77) Dated Subordinated Debt. 0% Source: Nyberg.1 bn. 47% Asset Covered Securities. €124. 13% Financial Instruments. €173.2 bn. p.7 bn. 3% Senior Unsecured Debt.2 bn. 2011.8 bn.Figure 1: Covered Banks – Liabilities Guaranteed by the State at 30-Sep-2008 (Nyberg. €49.2 bn. €0. 2011. p.

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