TAILIEUCHUNG - Irish Economy Note No. 10 “The U.S. and Irish Credit Crises: Their Distinctive Differences and Common Features”

This problem will not be solved by calls for more stress tests and scenarios or by new principles of liquidity management. You need a definition of (narrow) regulatory liquidity and a quantitative benchmark for it. I have some ideas on how such a liquidity standard could be designed so that commercial banks and investment banks have adequate owned liquidity, don’t hoard that liquidity, and don’t draw unduly on the Fed for liquidity We should seek an international agreement on liquidity standards, but until we get it, we should impose our own national standard | Irish Economy Note No. 10 The . and Irish Credit Crises Their Distinctive Differences and Common Features Gregory Connor NUI Maynooth Thomas Flavin Brian O Kelly NUI Maynooth Dublin City University March 2010 e N ote s Iri shEconomyN 1 The . and Irish Credit Crises Their Distinctive Differences and Common Features1 Gregory Connor NUI Maynooth Thomas Flavin NUI Maynooth Brian O Kelly Dublin City University March 2010 Comments welcome. Abstract Although the US credit crisis precipitated it the Irish credit crisis is an identifiably separate one which might have occurred in the absence of the . crash. The distinctive differences between them are notable. Almost all the apparent causal factors of the . crisis are missing in the Irish case and the same applies vice-versa. At a deeper level we identify four common features of the two credit crises capital bonanzas irrational exuberance regulatory imprudence and moral hazard. The particular manifestations of these four deep common features are quite different in the two cases. 1 Contact addresses . We wish to acknowledge support from the Science Foundation of Ireland under grant 08 SRC FM1389. 1 Introduction This paper compares the two linked but separate credit crises in the . and Ireland explores the differences between them and reaches some tentative conclusions about the deep common features which caused them. The two crises are interesting theoretically since although they occurred near-simultaneously in two closely linked economies from a superficial perspective they are quite different. The two main building blocks for explaining the . crisis subprime mortgages and mortgage-related securities are almost entirely absent from the Irish capital market and from Irish financial institutions balance sheets. Three of the four main catalysts for the Irish crises are absent from the . case large net borrowing

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