View from Dublin: Business caught in ripples from Northern Rock crisis
There is little to suggest that Irish retail banks, which are much less dependent on the wholesale money market than institutions such as Northern Rock, are nursing any serious hidden injuries.
But they are hurting and there is growing evidence they are looking for a whipping boy to claim their punishment. The most likely candidate? Irish business.
Almost every international market suffered on the news of the Bank of England's bail-out of Northern Rock, as investors worried about who might be next. Of all the international indices which suffered it was our own Iseq, weighed down with banking stock, which took most flak.
The Financial Regulator issued a statement saying all was well with the Irish banks. If international investors remain unconvinced it is reasonable to assume that those banks which might make money available to their Irish counterparts might also be wary.
This is speculation. It is, however, an unfortunate fact that Irish banks are at least suffering from the same lack of liquidity which is affecting their European peers. This leaves them with two realistic options, to pay more for money or take less of it. They could also convince the market that they are a good risk, or accept lower profits.
Leaving aside the innate wish of all companies to maintain profits, accepting a smaller bottom line would lead to a profit warning and in the present skittish markets few banking chiefs will be brave enough to risk that.
Taking less money means banks would have less to loan out, putting them at a competitive disadvantage and, more importantly, acting as an artificial drag on the growth of the Irish economy in general and Irish business in particular. This would affect the future profitability of the banks.
Faced with the prospect of increasing rates the question is which customers should bear the pain, with potential S& M partners falling broadly into two camps - ordinary punters and business.
Punters, whose borrowing is largely tied up in mortgages, can't be hit for two reasons: first, most of these mortgages are pinned to ECB rates. ECB rates have not increased and so neither can the mortgages rates.
Secondly, and more important, constraint on the bank's ability to pass on the pain to punters is that this is a very competitive market.
Any attempt, in other words, would lead to a loss of business.
The other week AIB chief executive Eugene Sheehy travelled to NCB's offices to convince the stockbroker all was well with Ireland's largest bank. This is what NCB told its clients: "The bank expects to be able to pass on higher funding costs across most business lines but this is unlikely for the mortgage business."
A healthy mortgage market means punters are excused whipping-boy duty but the lack of competition in the business banking market means Irish businesses are expected to bear their backs and take the punishment without complaint. And they probably will.