Central Bank plans new curbs on lending splurge
Published 01/07/2011 | 05:00
THE Central Bank is gearing up to introduce sweeping new measures to streamline the way banks report bad debts and may soon impose lending limits to prevent banks from embarking on another loans bonanza.
The two initiatives are revealed in the Central Bank's latest 'Banking Supervision Strategy', which outlines the steps the authorities are taking to prevent another banking implosion.
The first strategy, unveiled a year ago, focused on big picture themes including upping staffing levels at the Central Bank, introducing a more challenging approach to supervision and overhauling banks' pay policies.
The new document, unveiled yesterday, charts the next phase of the financial regulation battle as the Central Bank moves beyond big ticket issues like the stress tests and into more in-depth areas.
The "most important" issue identified for the coming year is "to enhance the soundness and integrity of Irish banks' balance sheets" and the new document details a number of initiatives in this area.
The Central Bank wants institutions to ensure the provisions they have already booked against likely losses "reflect the asset quality" involved and says provisions may have to be reviewed generally "as a result of a significant deterioration in the general economy".
The regulator says it will also ensure that "banks use a more conservative, consistently applied approach" to impairments and provision, to eliminate the "significant variation" in the prevailing approaches which gives "wide variations in provision outcomes for similar portfolios".
In addition, banks will have to publish a raft of new disclosures including the definitions of impairments they're using, the timings of any write-offs, the methodology used for en masse provisioning and information regarding portfolio quality.
The Central Bank said it would also make a long-awaited decision on the introduction of "credit limits" for banks in the third quarter of the year, with a view to introducing any measures by the end of the year.
Other priorities include "enhancing credit intelligence in Ireland", most likely through the creation of a national credit bureau, and reviewing the code for small business lending.
Internally, the Central Bank is beginning work on creating the structures for a 'Special Resolution Regime' that would allow the orderly wind-down of a distressed bank.
Yesterday's document shows the Central Bank is creating a dedicated "resolution function" within its prudential analytics and resolution departments, and is developing "staff and other resources" to operate the resolution regime.
The Central Bank will also continue its recruitment campaign and will install a new "change management office" to streamline the evolution of the organisation.