Simon Carswell tells us that, due to the extent of the damage to their balance sheets, an injection of state capital into AIB and Irish Nationwide could
in effect take control of the two institutions.
We're hearing that word 'in effect' a bit too much lately. Either the state has some measure of control which we can measure, from 1 to 100%, or it does not, and that measure is 0. Tacit control of a large financial institution is not the way to do business, because it creates uncertainty, and the one things Irish banks need less of is uncertainty. Then there is the issue of governance. Senior department of Finance officials are not bankers. Bankers are bankers, they know their businesses at least as well as civil servants do. I'm not saying we should leave the same bankers running their businesses after the recapitalisation, but it is clear to me that The extent of state control for these banks needs to be made explicit right away today during the series of speeches from the Minister, the Governor of the Central Bank, and of course from the Financial Regulator.
Karl Whelan has more on this here, but also falls into an 'in effect' trap. We've got to be careful about this, because the extent of state control determines the type and range of exit strategies the state and these banks can pursue from each other's clutches. I, for one, do not want AIB and Ireland's other wayward banks on my tab for a moment longer than necessary.