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Ireland To Rescue Ailing Banking System

Ireland's government is devising plans to revive banking system, as part of its strategy to rescue banks that are roiled by property bust and encourage them to begin lending again, reported Wall Street Journal.

Reportedly, the government will set up National Asset Management Agency (NAMA) under ‘bad bank’ program to acquire toxic assets from Irish banks, at higher discounts than earlier expected.

NAMA is expected to spend EUR8.5bn to purchase approximately 1200 non-performing loans valued at EUR16bn from various banks.

The government plans to acquire loans of EUR81bn value by the end of February 2011. It has also issued tough capital directives that are expected to bring more lenders under its ownership. At present, it owns Anglo Irish Bank and has 25% stakes in Bank of Ireland and Allied Irish Banks.

Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin, said: “The cost of this banking crisis is obviously bad news for everyone. But the process [of fixing the banks] has to be carried through so that you have a stable banking system and one that spurs economic growth. If you don’t, the downturn will last even longer.”

However, some in Ireland think that the government is not acting wise by pumping money into ailing banks like Anglo Irish Bank.

Brian Lenihan, Irish minister for finance, said: “An immediate wind-up would lead to a fire sale of assets resulting in a permanent additional and unnecessary loss of upwards of EUR30bn. In addition, the state would have to provide a large sum of cash, in the order of EUR70bn upfront to meet the deposits, bondholders and the liabilities due to the euro system.”

Mr Lenihan said Allied Irish Banks and Bank of Ireland must raise an additional EUR7.4bn and EUR2.7bn in capital privately to meet the financial regulator’s new capital standards, failing which they may find themselves in the hands of state, reported the newspaper.