A great deal of territory has been already covered in terms of the council's mandate, which is very fiscal concentrated, as set out at the bottom of page 1. Professor McHale stated in his presentation that the balance sheet recession shadows everything not alone in Ireland, but abroad. I have been saying that since 2009, including officially on paper to the late Brian Lenihan, in which I predicted that the heads of balance of the six main banks, their liabilities and assets would be not less than €40 billion. He would have thought I was on drugs had I told him what I really believed, namely, that there would be a minimum of €50 billion on NAMA-type loan losses. I also told him that the proposition as designed, the purpose of which was to restore the solvency-liquidity of the banks, would not work, and what I believed needed to be done with the banks.
As Dr. Donovan stated earlier, the banks need capability to address the problem which has only belatedly been admitted, the scale of which is 180,000 mortgages on top of what they shipped out to NAMA. When Bank of Ireland did its bill of lading to NAMA, it reduced its first estimate from €18 billion to €12 billion. How it did that in three months I do not know. It would have had, on average, 35% write-downs or provisions on that €12 billion. The remainder of Bank of Ireland's loan book - it may have an update on these figures which I obtained from it last year - is €105 billion. Its provision against that €105 billion is €7 billion, which is a 6.7% provision. That is absurd. I will explain why. Bank of Scotland Ireland had a peaked loan book of €42 billion. It has written off 40% of that. That percentage includes loans that would have gone to NAMA but did not and had to be written off within Bank of Scotland Ireland's books. Bank of Ireland's loan book of €105 billion includes €81 billion in the following categories of development land loans, development loans, property investment loans, mortgage loans, mortgage-to-let loans and construction industry exposure, yet it has made only €7 billion in provision against that €81 million.
PCAR of March 2011 is as unreliable as PCAR March 2010. I told Mr. Elderfield in his office in April 2010 that the €7.4 billion pencilled in as needed for AIB by the end of that year was absurd and that it needed €10 million immediately and that the figure of €3.6 billion in respect of Bank of Ireland was equally stupid because it needed €6.5 billion immediately. If we have a balance sheet problem in the economy, we should, as set out in the council's mandate, ensure the needle on the dial is aimed towards 3% of GDP by 2015. We hope in the long term to get debt to GDP down to 60%. During the past four years it has increased to €104 billion and is now spinning out of control. The paper by Cecchetti, Mohanty, Zampolli and Jackson Hole states that the real effects of debt over 28 years in the 18 OECD countries were indicative of when economies stagnate. Household debt is that which holds people back from spending, saving and investing.
Non-financial corporate debt is the type, if too large, that weighs down investment enthusiasm or otherwise to do new business and projects and repay old loans. We all know that with national debt, the Government struggles just to make ends meet. If we add all these, Ireland's debt to GDP figure was at 450%, the highest in the world, and it was not even admitted. It was dismissed as kindergarten economics. Addressing those problems is like going behind the hands on the dial to see the cogs.
These cogs include the household debt. Some 180,000 households will all now feel diminished, embarrassed and talked down to. The insolvency legislation will make them feel that they have to sit up, listen and pay attention while getting in a professional insolvency practitioner to work it out. It is appalling as the banks for seven years had a run of disobeying all essential and basic rules of prudential and fiduciary banking, even if we forget about lending. These basics mean banks should take in streams of deposits from a multitude of sources and maturities, mind them safely, honestly and well, and they should lend out 90% of them while reserving 10% in cash to meet the calls of depositors. Those loans should go to sectors across the economy. If all banks did that, there would not be a chance of a credit bubble emerging.
Professor Niels Thygesen from Denmark confirmed this to me two years ago at an international financial convention at the Four Seasons hotel. Some of the people here today presented at that meeting. That is the key to the issue. If the banks loaned at 150% of deposits, as they were doing, they were straying at 60% above the prudential limit of 90%, which is time-tested. It is a two thirds error, meaning the banks created the super-pricing or bubble pricing of assets. This was a dereliction of duty. If Joe and Mary borrow €750,000 for a €1 million property when the economy was fairly hot, they are buying a house for that money. When the bubble bursts, the asset price and value disappears and the house may now be valued at €450,000. The loan, on a tracker mortgage, still exists. How dare the banking sector and its individual players insist that there is any commercial and moral right, having created an economy that destroyed investment value, to look for the full repayment. They want to collect the mortgage with interest over as many years as it takes on an asset reduced to €450,000, with a destruction of asset value of €550,000. This should be behind the wall of anybody discussing what has happened with private borrowers. The bankers must take responsibility for two thirds of the funding in that seven-year run. If the loss is €550,000 and the negative equity is €200,000 or so, two thirds of that should come from the bank's account.