Anglo Irish Jig

Just when people thought that the financial system was seeing some sort of stabilisation, along comes another full-scale nationalisation - this time at Anglo Irish Bank. Granted, it's not a huge dent in the system compared to Citigroup, but nevertheless an unwelcome development.

The Irish government was left with little choice. After guaranteeing all deposits (a somewhat rash and expensive move), the recapitalisation of AIB was always going to be problematic. In this case the market just wouldn't play ball, leading to a binary choice between a bank failure and full nationalisation. AIB did not help its case with a controversial loan transaction by its chairman.

The full scale of the folly of relying too much on wholesale funding is now plain to see. As an aside, Volcker's action group failed to quash a potential return of some sort of successor to the Glass-Steagall Act (unwisely dismantled in the 1990s). I think such a sequel would be no bad thing.