Irish Permanent’s loans-to-deposits ratio remains 227pc, down from 247pc last year. What this means is that the delinquent management of this bank borrowed so much in the boom to lend out that now — even after three years of contracting — for every €1 deposit the bank holds, it has lent out more than €2.27. For the bank to be viable, it has to get this ratio back to €1 of deposits equal to €1 of lending.
This implies that it has to aggressively cut lending or aggressively increase deposits or a combination of both.
…If the bank gets into a deposit war at a time when there is no demand for loans because people and companies don’t want to borrow, it is toast.
Why? Because its cost of capital is likely to be greater than its return from that capital. That is how you go bust.