It appears that the "bad bank" plan will be announced alongside the supplementary budget on Tuesday. This is likely to cost the taxpayer far more than the adjustments which will be announced in the Budget yet public attention has not focused on the consequences of a "bad bank"

The key to the"bad bank" plan is the relationship between the price the Government pays and the long-term value of the assets it receives in return. If the Government overpays, the taxpayer will be burdened with the failures which should properly rest with the bank shareholders and management.

If the Irish financial institutions transfer to the State nothing more than the real estate against which bad debts have been secured, the burden on the taxpayer will be enormous because
(a) the Government would pay a price sufficient to avoid nationalisation, but
(b) if we are to develop a sound economy, real estate must never again achieve valuations approaching those of recent years.

In Ireland, real estate lending normally involves personal recourse and the “bad bank” should have subrogated claims against the borrowers. Unfortunately, this will require (a) the political will to pursue speculators and developers and (b) effective means to extract money which, no doubt, they have already put beyond the reach of Irish courts.