Question

a) What is meant by the term "banking union"? What was the rationale for creating a banking union in Europe?

b) “Ireland followed international best practice by setting up NAMA, as asset management agency to run down the bad assets of the Irish banks. Releasing bad assets from bank balance sheets is instrumental in the path to recovery.” Dirk Schoenmaker (2015). Using the stylised bank’s balance sheet presented in Q4, discuss how setting up an asset management agency like NAMA could help to resolve a banking crisis.

Answer 1

a. It is an important requirement for the formation of economic and monetary union whereby transferring the responsibilities of banks in an economy to the centric authority to have better transparency.

Due to vicious circle of Banks credit condition and sovereign credit of the home countries led to the Eurozone crisis, thus felt the need for banking union in Europe.

b. NAMA- National Asset Management Agency took property loans, against which the collateral collapsed, from republic banks led to insolvency of these banks. It manages and collected the repayment of the debts borrowed against the property and incase of non payment of the loans, it take over the property and would recover the debt by selling the property. This enabled the NAMA to overcome the property bubble of later 190s and early 2000s