Undercapitalized Ireland
Nov 22nd, 2010 by Zheng (Kathy) Li
On November 16th, the banks in Ireland faced great troubles from the collapse of the “real-estate bubble”. This caused many investors to withdraw tens of billions of euros. The fear caused not only the loss of investors and liquidity funds, but also a government that was unable to provide a bailout. To save other countries from being hit by this terror of failing banks, European Union will be funding Ireland with €80- to €90-billion from their emergency rescue fund.
How did the banks in Ireland come to this in the first place?
They were undercapitalized. Since the collapse of real-estate caused such an enormous effect on the banks, it can be assumed that the banks were highly levered on lending out mortgages. They took a risk, and now they are in trouble. This is why Ireland needed an injection of liquidity, and a large one, from the European Union. The effects of this is still to be determined, but for now, these funds are merely a hope to stop the increasing fears of investors in Ireland.
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