Sunday, Oct 07, 2007
Just How Sound is the Irish Banking System?
Morgan Kelly: Professor of Economics, University College Dublin.
While there has been a lot of interest lately in the possible risk to banks from sub-prime
loans, nobody seems terribly concerned by the large and rapidly growing exposure of Irish
banks to property speculators. Irish banks are now owed almost as much by builders and
developers as they are by mortgage holders, and are now more exposed to commercial real
estate than Japanese banks were when they crashed in 1989.
Posted by sold 2 rent 1 @ 09:06 PM (455 views) Add Comment
3 Comments
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1. Drewster said...
This paper contains one very serious allegation which, if true, could bring down the whole house of cards!
"Because real estate loans are collateralized mostly by equity in other leveraged real estate, they can rapidly become almost worthless."
This means that BTL investors are using the rise in value in property X as deposit on properties Y and Z, and then repeat the same trick over and over until the "investor" has built up a massive portfolio heavily leveraged against itself! If the overall values start to dip then every property in the chain is immediately in negative equity and the panicked investor dumps on the market. This means the fall could be a lot sharper and more sudden than the rise.
2. European-bear said...
Irish house price meltdown here we come! I brought in Dublin in 1993 for £80,000 and sold in 1999 for £250,000 (thinking then it was in bubble territory). Since 1999 though prices have doubled again in Dublin....But if a few big builders go down, and banks are but on life support there will be lots and lots of cheap new builds in Dublin to be snapped up!
3. mrmickey said...
It's seems this cancer has spread throughout the entire global banking system, we think the UK economy is built on sand, Ireland has gone from one of the poorest countries in the europe to one of the wealthiest almost overnight all built on a property boom, I do however think most Irish realise this and are enjoying their fantasy wealth while it lasts.