Paper for ISI Congress, Dublin 2011  Describes banking interventions in Ireland  Treatment in National Accounts (ESA95/MGDD)  Specific methodological issues

Chart 2: Irish Government Deficit

Chart 1: Irish Government Debt

Methodological issues Guarantees Capital injections into publicly owned banks Classification of units (bad banks) Re-routing of transactions

Government guarantees Off-balance sheet contingent liabilities or Government Debt

EU Government guarantees linked to the financial crisis (end March 2011) EU Member StateValue (€bn)% of GDP Ireland Greece UK Cyprus Belgium Denmark Euro area (EA17) EU , Source: Eurostat

Government guarantees SNA93/ESA95  Guarantees contingent liabilities  Exceptionally in the MGDD can be Government Debt SNA08/ESA10  Standardised guarantees  One-off loans still contingencies but

Government guarantees Para of SNA : “As an exception, one-off guarantees granted by governments to corporations in certain well-defined financially distressed situations and with a very high likelihood to be called are treated as if these guarantees are called when the financial distress is recognised”

Capital injections into public units SNA93/ESA95  Injections to cover accumulated losses – Capital transfer  Other injections as owners – Equity SNA08/ESA10/MGDD  Injections to cover accumulated losses – Capital transfer  Other injections as owners – Equity or capital transfer, depending on expected return. SNA08 less prescriptive than ESA10/MGDD which looks for a sufficient rate of return

Classification of public units Private /Public control  Concept more refined in new SNA/ESA, but still judgemental. Market/Non-market  Also more refined in new SNA/ESA. ESA still more prescriptive (50% rule)

Classification of publicly controlled bad banks within EU Private /Public control?  Under very restrictive conditions, financial corporations controlled by Government may be classified outside of General Government Sector if majority privately owned  Only during the financial crisis

Classification of publicly controlled bad banks within EU Market/Non-market  Application of ESA 50% rule to financial corporations difficult  Bad bank - Defeasance structure or MFI?  In ESA, MFI’s based on list maintained by ECB for statistical reporting and Eurosystem operations

Classification of publicly controlled bad banks within EU Market/Non-market  Old bank in run down mode may have banking licence and be on MFI list (Anglo)  Newly established bad bank may not have banking licence (Northern Rock)  ECB MFI list used for statistical reporting but also Eurosystem  Comparability may be improved by re-routing transactions so classification becomes secondary

Summary During financial crisis the scale of government interventions in banks very large Borderline cases - Inconsistencies in recording of capital injections and in classification of units. Effort to improve transparency of reported data especially by Eurostat New SNA08/ESA10 does not fully resolve problems. Economic reality the key but can be difficult to implement