The Debt Of The Irish Banking System

1798 Words8 Pages
The boom in construction was fueled by banks providing cheap credit to both builders and home buyers The total amount of mortgage loans shot up from sixteen billion euros in 2003 to one hundred six billion euros in 2008 (FN). The subprime lending allowed Irish citizens to qualify for loans that would not qualify in normal conditions. The EMU also allowed the Irish financial institutions to provide mortgages to these homeowners and builders at historically low rates. Many of these loans meant for business ventures were used to make risky investments on properties that could only be paid off if there was a continued rise in the values of these developments. Another issue with the loans made is that only a few banks were involved in this risky activity, placing a large burden on those banks. The total assets of the Irish banking system were five times larger than the size of the Ireland economy prior to the crisis. By September of 2008, a year after the housing bubble began to burst, Irish banks were no longer able to raise funds on the international markets, consequently sending Ireland into a severe crisis.
In an attempt to save Irish banks, the government issued a blanket guarantee for the liabilities of banks. The government decided to recapitalize the banks by using public funds, which would prove to be more disastrous to the budget deficit following the housing collapse. Unemployment skyrocketed to nearly fourteen percent over the next few years as international
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