Years ago a bank manager abroad offered me a loan for business on condition that it could be called in almost immediately on short notice. He hastened to reassure me that in practice the loan would not be called in on short notice. Banks like those loans because they have to put up less reserves against them than on other loans.I declined the loan as I felt uncomfortable with the risk of trusting a stranger.
Yesterday,I heard second hand that a major bank called in such a loan even though the debtor company was servicing the loan and was not behind on payments. It looks like the bank will exercise its power to liquidate the business and come after the business partners for balances owing. But since only one partner in the business has serious assets,it looks like he will be "jointly and severally" liable for all the debt and lose his life savings. In the Celtic Tiger boom,the small print of loans,a form of borrower Russian roulette, was ignored by many borrowers.
This ruthless bank action suggests orders from the top to increase bank liquidity at all costs by reducing loan assets on the books at every opportunity,regardless of the soundness of loans. This is a bad sign for the Irish economy.