Regulator admits stress tests failed
Financial markets not convinced banks have enough capital to withstand future losses
Published 23/11/2010 | 05:00
FINANCIAL Regulator Matthew Elderfield yesterday admitted his stress tests had failed to convince financial markets that Ireland's banks have enough capital to withstand their future losses.
Speaking in Dublin yesterday, Mr Elderfield said that a "contingent capital facility" that would act as a backstop for bank funding was under "active consideration".
The Central Bank is also exploring the benefits of "immediate additional capital injections" that would help banks meet new international funding standards ahead of their peers, he added.
The comments mark the first admission from the Regulator that Irish banks could need more capital than recommended by the stress tests, which foisted capital-raising targets on the banks earlier in the year in a bid to foster confidence.
Mr Elderfield yesterday stressed that his office had "not yet seen hard evidence" that would make them revise their views on loan losses, which formed the basis of the stress tests.
He admitted, however, that the measures taken so far had "not been sufficient to restore market confidence", prompting the Central Bank to consider "additional policy measures".
"As a principal source of concern relates to the possibility of further losses beyond those assessed by the PCAR [stress test] process, then a standby contingent capital facility could be considered to provide a backstop," he said. He added that "immediate capital injections" could also be made now international money was in play.
"The exact balance between these different options needs to be carefully considered in light of the implications for taxpayers and long-term government finances," Mr Elderfield said.
As well as enabling additional capital measures, Mr Elderfield said assistance from the International Monetary Fund (IMF) and EU would enable progress on bank restructuring.
"This restructuring would ideally involve further deleveraging over time through asset disposals," he said.
AIB has already sold its operations in the US and Poland, while Bank of Ireland has sold its asset management division and agreed to sell mortgage lender ICS and its life management business.