In the case of Ireland the Banks - most of which are now (or will shortly be) in public ownership - have €150 Billion in liquidity assistance funding from the ECB at the overnight rate. Given these banks lend on that money at much higher rates, this should be an immensely profitable activity for them. - and thus the taxpayer could ultimately benefit from this.  In addition, the last €24 Billion of public funding for the banks to recapitalise them post the stress tests may not be entirely lost provided those banks return to "profitability".

The problem with this scenario is that the problem has effectively been passed on to home owners who are heavily mortgaged (and in negative equity).  Should they start to return the keys in large numbers this will crystallise huge losses for the banks and further depress property prices. I'm not sure the stress tests really cover this doomsday scenario.

Index of Frank's Diaries