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5.2 ECONOMICS AND BUSINESS
Banks are indispensible to the efficient functioning of the economy. Right now they are unable to carry out their normal functions (e.g. providing lines of credit to individuals and business) because they are underfunded. They are rationing credit because they do not have enough funds. The funds they need to lend to borrowers come from deposits, equity and bonds. During the ‘boom period’ banks did not have enough funds from deposits and had to rely on the inter-bank market to borrow the funds they needed in order to lend. According to the Central Bank ‘net foreign liabilities’ of commercial banks in Ireland, (a proxy for bank borrowing from other banks and the international market, rose from 10% of GDP in 2002 to 60% of GDP in 2007. To borrow this money the banks issued bonds or IOUs. (Incidentally, analogies with the Swedish experience are misleading because Swedish banks at the time were not exposed to inter-bank lending).
Power, T.,'' NAMA versus Nationalization – How to Deal with the Banks’ Toxic Loans?'', Property Valuer, Vol.28. No 4 Autumn 2009 doi:10.21427/59ar-gc90