New Insolvency Rules could make things Worse in Ireland

Citibank have produced a report  titled ‘Ireland: Tough times ahead’ – and in it  they say that Personal insolvency rates could rise  when the Insolvency Bill is passed and Ireland could  slip back into recession.

Citibank say —  “In our view, it is likely that personal insolvencies in Ireland will soar in the next year or two, with more use of default as a means of deleveraging, especially since long- term unemployment continues to rise in Ireland.”

Citibank based their assessment on what happened in the UK  when similar changes to insolvencies were introduced about 10 years ago. Despite strong economic growth, the number of insolvencies in the UK doubled between 2001 and 2006.

A knock-on effect of an increase in insolvencies would be a further tightening of lending by banks.

Rising insolvencies are likely to cause additional losses — perhaps substantial — for Ireland’s banks on consumer credit and mortgage loans, and also may feed back to rising interest rates and tighter lending standards as banks seek to protect themselves against rising credit risk.”