2008–2011 Irish banking crisis

The post-2008 Irish banking crisis was the situation whereby, due to the Great Recession, a number of Irish financial institutions faced almost imminent collapse due to insolvency. In response, the Irish government instigated a €64 billion euro bank bailout. This then led to a number of unexpected revelations about the business affairs of some banks and business people. Ultimately, added onto the deepening recession in the country, the bank bailout was the primary reason for the Irish government requiring IMF assistance and a total restructuring of the Irish Government occurred as result of this.

During the second half of the 1995–2007 'Celtic Tiger' period of growth, the international bond borrowings of the six main Irish banks—Bank of Ireland, Allied Irish Banks, Anglo Irish Bank, Irish Life & Permanent, Irish Nationwide Building Society and Educational Building Society—grew from less than €16 billion in 2003 to approximately €100 billion (well over half of Ireland's GDP) by 2007. This growth in bond funding was quite exceptional relative to the aggregate euro area and the focus of the Central Bank and most external observers was on the apparently strong capital adequacy ratios of the banks or Pillar One of the Basel framework. For example, the 2007 International Monetary Fund Article IV Consultation—Staff Report on Ireland has a heading summarizing the position of the banking sector as "Banks Have Large Exposures to Property, But Big Cushions Too.". However, this appears to have come at the expense of a lack of emphasis on the second pillar, which relates to the supervisory process. In particular, the Basel II guidelines contain an extensive section on the importance of dealing with "credit concentration risk", i.e. banks having too much exposure to one source of risk. Inadequate and/or lax supervision of the Irish banking system had allowed excessive borrowing by the Irish Banks on the corporate and international money markets. By October 2009 it was German and French banks that were most exposed in the periphery of the eurozone, with more than 40 per cent of the foreign claims on Greece, Ireland, Portugal, Italy and Spain being French and German. In 2010 the Bank for International Settlements recorded between US$186.4 billion and $208.3 billion in total exposure to Ireland, with $57.8 billion in exposure to Irish banks. The German monetary financial institution sector was the largest investor in Irish bank bonds during the pre-crisis period and according to the Bundesbank's consolidated figures German banks had, by September 2008, the month of the bank guarantee, €135 billion invested in Ireland. These figures for the exposure of German banks to "Irish" banks, however, relate almost in their entirety to their exposure to their own large subsidiaries based in Dublin's International Financial Services Centre, for example Depfa, which reportedly had an external focus and external ownership.

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