Given the steepness of the decline in economic activity (between the peak quarter in late 2007 and the trough in late 2009, real GDP fell by 11.5%; GNP by 13.9%) and employment and the steady decline in house prices both actual and forecast, there was very little in historical experience – either in Ireland or in other advanced economies with large financial sectors – to guide those attempting to estimate the range of plausible outcomes for a bank lending portfolio which had clearly been inadequately underwritten.
Loan losses were certain to be beyond almost all previous experience not just in Ireland, but in advanced economies: just how far beyond was clouded in uncertainty.3 From loss rates to capital requirements The Central Bank’s March 2010 projection for non-NAMA loss rates, combined with the first tranche haircut grossed up to apply to all NAMA loans, were employed with projections of capital and income generation from the rest of the banks’ activities over a three-year horizon, and a small buffer, to arrive at a needed capital amount by end-2012 that would ensure that the bank would satisfy the Central Bank’s chosen core capital adequacy thresholds.