7945_14-17_270809.qxd:14-17 20/08/2009 15:23 Page 16
INDUSTRY
‘Iwouldliketoseethebanksgoing
backabitmoretobusinesslending.
Weneedinvestmentratherthan
consumption,andbankshavebeen
verybadatthatovertheyears’
Alastair Milne
Indeed, in his book, Milne suggests that those banks which Milne believes this opportunity should not be lost and that the
are majority owned by the taxpayer in the UK, should see non- banks must rethink their business models. “Banks have been
executive supervisory directors appointed to their boards – as it obsessedwiththeideaofrunningwithverylittlecapitalforalong
happens,thisiswhattheGovernmentdidhereinIrelandthrough timenow,andonthiswholeideaofreturnoneconomiccapital.I
itsStatenomineestothebankboards. think it would concentrate the mind helpfully to force banks to
MilnepointstotheregulatorsintheUK,theFinancialServices operatewithconsiderablymorecapital.”
Authority. “It turns out they were very well aware of what it was Hebelieves,however,itwillbeanongoingstruggletogetbanks
thatHBOSwasuptohere.Itisnotthatthesupervisorsweresleep- tothinklongerterm.
ingonthejob.Thedifficultyforthemwastheyreallyhadnopow- “To some extent that pressure on banks comes from the buying
erstochallengethebanks’management.Providedtheywerecom- sideoftheequitymarket.Wenowexpectourbankstobepublicly
plyingwiththevariousregulationsandcapitalrequirements,then tradedcompanies.That’sgoodinmanyways,asitputssomegood
thesupervisorswereinarelativelyweakposition.Atleasthavinga disciplinesonthem,butithaspushedthemintoalotofshort-term
boardroomrepresentative,theycouldexpressconcerns,andensure thinking,topushupthereturnonequity.
that potential high risk is being put on the agenda at the highest “We’ve really got to shift that mindset, not just in the banks
level.”SotopmarksforIrelandonthispoint. themselves,butalsointheassetmanagementindustry,thepension
funds, the insurance companies. They’ve got to think through the
Mending the banking system cycle, through the next downturn, not just to be pressurised into
So what now can be done to mend the banking system? Milne making every penny they can, just because there’s a high demand
expresses frustration with the short memories of the majority. forlending.”
“Some people seem to be thinking: we’ve just got to fix the prob-
lemswiththebanks,recapitalisethem,dealwiththebadloansand The bad bank model
thentheycangobacktolendingagainandtothebusinessmodel Milne has mixed feelings about the merits of NAMA-like bad
theyhadbackbeforethecrisis.” banks.“Ifabankisinsuchbigtroublethatithasalreadyendedup
“To me that doesn’t make any sense. It’s going to be very much in public ownership, or with a large majority public stake, in that
moredifficulttofindopportunitiesforconsumerlending.Forone, caseitmaywellmakegoodsense,”hesays.“Inthatcase,itdoesn’t
householders are much more aware of the risks of taking on too matterwhatpriceyouselltheassetsforbecauseifyousellthemfor
muchdebt,sothere’snottoomuchdemandfromthem.Thebanks alowpricethetaxpayerwillmakemoneyoutoftheassetmanage-
are also now aware that they can’t rely on that sort of wholesale mentcompany.Ifyousellthemattoohighaprice,wellthenthetax-
funding,sothey’renotgoingtogetalotofbusinessopportunityin payerwilllosemoneytherebutmakemoremoneyontheirstake.”
mortgageandconsumerlending. While Milne does advocate the separation of bad assets from
“I mean many of those banks are profitable, they make good good–somethinghesaysthebanksarealreadydoinginternallyin
marginsonretaildepositsand,inthiscautiousenvironment,they anycase–hebelievesthebadbankprinciplebecomesproblematic
canchargealotmoreformortgagelending,”continuesMilne.“But when it is a question of selling assets out of a bank that is largely
growthintermsofthebalancesheetintermsofbusiness,it’shard still in private ownership. The exposure to the taxpayer then
toseewherethatwillcomefrom.” becomesmuchmoreofanissue, hesays.
“Ideally,whatIwouldliketoseeisthebanksgoingbackalittle Milne points to the oft-cited Swedish bad bank model of the
bit more to business lending. We need more investment rather Nineties, when that country’s credit and real estate boom had led
than consumption, and banks have been very bad at that over to similar problems to those Ireland now faces. The Swedish gov-
theyears. ernment set up a temporary bank authority to create several new
“It was just too easy. They had a choice: do you lend to a risky bad banks to handle the toxic assets of nationalised banks
smallbusinesspersonordoyoulendsomebodyamortgage?Itwas NordbankenandGotaBank.
kind of a no brainer, as property prices continued to rise. I think “PeoplepointtotheSwedishexample,butactuallythatwasquite
they are going to have to think much harder about providing alimitedinitiative.Firstly,theyonlydiditfortwobanks:onewas
moneyforthecorporatesector,particularlysmallbusiness.” Nordbanken,whichwasalreadyinpublicownership,andtheother
16 UCD BUSINESS CONNECTIONS
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60