Banks may ask for cash injection
German state-backed system explored in discussions to help kick-start mortgage lending
Sunday July 06 2008
THE State may be called upon to inject cash into the country's major banks in a bid to kick-start mortgage lending again.
The Sunday Independent has learned that several of Ireland's most senior banking figures have been engaged in informal discussions with the Central Bank Regulator with a view to improving liquidity in the mortgage market.
While the precise details of the talks have been kept firmly under wraps, Bank of Ireland's chief executive of retail financial services Richie Boucher gave some indication of the banks' engagement with the regulator at a meeting of the Dail's Finance Committee last Wednesday.
Addressing the Committee on the problems with liquidity in the mortgage market, Mr Boucher revealed how the major banks had had "great engagement with the State authorities in the banking system to date to get some framework" and how he and his peers "would like to see how we can work in the coming months to see how we can make that work better".
Asked by Labour Party Finance spokeswoman Joan Burton if the banks were working with the State authorities to produce new legislation, Mr Boucher suggested that a German state-backed lending system used by Irish foreign-owned banks in the IFSC could be rolled out for Irish-owned banks in the domestic market.
Responding to Ms Burton, Mr Boucher said: "Legislation is in place. Irish legislation had to be amended to enable [the German system of] pfandebriefe, mainly to assist the activities that go on in the Financial Services Centre, which are very important for employment in the entire economy. What we need to look at is how this can be used for Irish banks as well."
Expanding on his theme, the Bank of Ireland chief executive added: "A number of people have been working very hard. We have been bringing in Irish legislation to permit that to go forward. I don't have a instant solution, but I do believe we've had a great engagement with the State authorities in the banking system to date to get some framework . . . and we would like to see how we can work in the coming months to see how to make that work better. I wish I had an instant solution but I'm sorry I don't."
It is understood that many of the country's senior bank executives are favourably disposed towards the adoption of the German pfandebriefe system here, should any agreement be reached with the Central Bank and Department of Finance on State backing for the mortgage market.
Were such an arrangement to be made, the State would effectively become a key player in the mortgage market, holding on to mortgage deeds by way of security.
Mr Boucher's candid remarks at the Dail Finance Committee are understood to have caused some concern within the banking community, at the Central Bank and in Government Buildings.
Mr Boucher himself seemed cognisant of the potentially harmful impact of his own comments, and moved quickly to play down any suggestions that the Irish banking system might be in need of a State cash bailout.
Stressing that Central Bank assistance was not a long-term solution, he said: "The Irish banks as a whole, and in particular those with mortgages, have eligible collateral that we can get funding [on] from the Central Bank. But I think that is something that we would wish to avoid.
"We wish to take the stabilisers off our bike. We have to run our businesses in an appropriate fashion, taking in deposits from people who want to give deposits, and we are lending those deposits back to people who want to borrow money."
Contacted by the Sunday Independent for clarification on Mr Boucher's remarks to the Dail Finance Committee, a spokesman for the Bank of Ireland declined to make a comment.
The issue is now set to be raised in the Dail this week by Ms Burton. It will also be discussed further at the next meeting of the Dail's Finance Committee on July 15.
- RONALD QUINLAN
