Irish banks such as Allied Irish Banks, Bank of Ireland and Irish Life & Permanent are receiving capital injections of public money from Ireland’s National Pension Reserve. All are suffering from the first major increases in bad debt provisions, now that they are admitting the extent of their speculative lending to Irish property developers and construction companies, of which, many are now breaking the covenants of their loans.

The massive level of house construction in Ireland relative to the size of the population (4.5 million) was even greater, relative ot the size of the population, than other countries that experienced property bubbles. It has left Ireland with a huge unsold stock of housing that now lie empty in “ghost” estates. Many Irish property developers are on the brink of bankrupcy which would result in them defaulting on their loans to the banks.

Ireland does not have large, internationally diversified banks such as Santander in Spain. The balance sheets of Irish banks are concentrated one small market and are filled with toxic loans to property developers. The impact on them was, therefore, much more damaging. The smaller banks such as the EBS, Irish Nationwide Building Society, etc. were hit even harder than their bigger counterparts such as Allied Irish Banks, Bank of Ireland and Irish Life & Permanent (which owns PermanentTSB). A notable exception was the collapse of the scandal-ridden Anglo Irish Bank.

Now that the Irish government has nationalised Anglo Irish Bank and guaranteed all deposits (retail, commercial, institutional and inter-bank), covered bonds, senior debt and dated subordinated debt, it is the taxpayer who will suffer the consequences. The ever-increasing estimates of the Irish government budget deficit will appear trivial once the construction industry collapses, home repossessions rocket and the bad debts of of the banks are assumed by the government.