ECB approves NAMA plan, but at market value for assets?

[yehbut_nobut]

The European Central Bank has backed the Government's plans to move toxic bank loans into a national 'bad bank', but urged caution on how much banks should be paid for the toxic assets.
In a legal opinion published on its Web site today, the ECB said Nama created no major legal state aid problems or unfair advantages, adding it should help strengthen Irish banks' balance sheets and increase liquidity.
But it highlighted the dilemma and risks of deciding a price for the bad assets.
"The preference expressed in the draft law for the long-term economic value of assets, rather than current market values, requires careful consideration," the ECB said.

Finance Minister Brian Lenihan has said he will value the loans, some of which are still performing, to reflect their "long-term economic value" and has said he will not force banks to accept fire-sale prices.


The ECB warned that such a plan carried risks. "The ECB considers that a guiding principle for the scheme should be that there is an adequate degree of risk sharing in order to limit the cost to the government," the Frankfurt-based central bank said.

ECB urges caution on Nama payments - The Irish Times - Mon, Aug 31, 2009

In other words - it hasnt been considered carefully enough by the government up to now.

[Conor]

Full opinion is here.

[Question R24U]

If they hold firm on market value - I may even vote for Lisbon.

[TradCat]

If they hold firm on market value - I may even vote for Lisbon.

There's no need to go that far!

[Sailor]

This is a legal opinion - as such it will just be one of the inputs into what must be a soundly based economic decision. From a legal standpoint market value would be favoured but, from a commercial point of view, it might not be tenable.

[TradCat]

From a legal standpoint market value would be favoured but, from a commercial point of view, it might not be tenable.

From a commercial point of view market value is all there is!

[Question R24U]

There's no need to go that far!

Lisbon is the most overatted Treaty ever. Sure it means a President Blair or Foreign Minister Chris whathisname, reducing our voting rights to Leitrim magnitude, a few dozen more QMVs, and a failure to grasp that we have a fundamentally different legal system (and should provide zero competence to Europe on it) and undermines our pretense that wehave a different approach on defence and foreign affairs.

Market value v Alice in Wonderland value, could be a difference of €20-35bn*. They can buy my vote for that.









*this figure is entirely made up with no basis whatsoever - which qualifies at dept of finance level of economics.

[Sailor]

From a commercial point of view market value is all there is!

Not if it leaves us without a banking system

[Question R24U]

They appeared to be stronger with regard to the Spanish bank bailout.


http://www.ecb.eu/ecb/legal/pdf/en_c..._60_f_sign.pdf

The ECB notes that the Fund should
follow the standard of daily margin calls to ensure that the market value of collateral after haircut remains adequate to collateralise the loan, in line with the Eurosystem.

The prices used to value the collateral should also be the same as the prices used by the Eurosystem.

Regarding the Fund’s acquisition of assets, the ECB recommends further clarification of the price determination of the assets that could be acquired by the Fund. In this respect, the ECB notes that the prices at which banks’ assets could be acquired by the Fund should be based on market prices.
The ECB therefore suggests stating in the draft provisions that the price of the acquisitions by the Fund must not interfere with the transmission of the Eurosystem’s monetary policy and should avoid any distortions in asset prices across euro area countries.

[toughbutfair]

I have never pretended to know the answer to the banking problem so have changed my mind a few times.

I now think that IF THE PRICE IS RIGHT, that NAMA might be the least bad option.