I mentioned yesterday that people might now be looking at the creditworthiness of countries rather than the banks themselves.  This is after recent moves to bail out banks by several nations – most notably Ireland.  You see the funny thing is that in some cases the banks are now bigger than the gross domestic product (GDP) of their nations.  Here are a few examples:

Kaupthing Edge has total assets of €53bn – that’s 623% of Iceland’s GDP.

Landsbanki (IceSave) has €32bn – 374% of Iceland’s GDP.

They’re not the only banks in Iceland but between them represent around 1,000% of Iceland’s GDP.  With Glitnir having recently drained the Icelandic government’s coffers, would there be anything left to support other banks?  Of course it’s not quite that simple – if a bank goes bust all of it’s cash deposits don’t suddenly disappear.  On the other hand, this market is all about confidence – or rather a lack of it.

How about Ireland’s bank guarantee?

Bank of Ireland – €183bn – 102% of Ireland’s GDP.

Anglo Irish – €97bn – 54% of Ireland’s GDP.

Just two of the guaranteed banks have assets worth around 150% of GDP.  And let’s not forget that Ireland’s economy has been rather bloated recently due to an astonishing property boom that has now become a property crash.  The guarantee was a very shrewd move but essentially backed by thin air.

Now we turn to another bank popular with savers, ING.  It has assets of around €1,370bn which equated to 290% of the Netherlands GDP.

The UK has a number of huge banks.  RBS, HSBC, Barclays, HBOS, Lloyds TSB, Standard Chartered, Alliance & Leicester, Bradford & Bingley between them have assets of €6,900bn which represents 420% of GDP.

There is a nice list of these figures on the FT website here.

Banks declare each other likely to default due to their excessive leveraging then countries take on their bad debts to support them.  We are simply transferring all the bad debt to the countries instead.  Would I loan money to Iceland or Ireland?  Nope.

While the US engages in some rather filthy political point scoring the Republic of Ireland government has quietly launched its own rescue plan for Irish banks.  Whether you agree with the politics of intervention or not, there’s no denying that the Irish are all action.  There’s no fuss, no mouthing off, just action.

The guarantee lasts until September 2010 and covers Allied Irish Banks plc, Bank of Ireland plc, Anglo Irish Bank Corp. plc, Irish Life and Permanent plc, Irish Nationwide Building Society, the Educational Building Society and ‘’such specific subsidiaries as may be approved by government,” the ministry said.

The guarantee is being provided at a charge to the banks and is subject to ‘’specific terms and conditions so that the taxpayers’ interest can be protected,” the ministry said.

Government Guarantees Deposits for 2 years, full article here

The guarantee covers up to €400bn – more than twice the country’s gross domestic purpose.

The Irish economy has been having a pretty tough time lately so the move is not surprising.  Given their corporation tax rate of just 12.5% the Irish have already shown willing to compete for business on an international stage and on a grand scale.