Thursday 27 July 2017

ECB stays tight-lipped over move to hire advisers on Irish banks

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Emmet Oliver, Deputy Business Editor

The European Central Bank (ECB) has refused to comment on why it seeking to hire advisers to examine its large exposures to the Irish banking system.

The Frankfurt-based organisation is believed to be talking to several advisory firms with the intention of appointing one of them to advise it about the future of the Irish banking system.

Rothschild and Lazard, both of which have long associations with the bond market, are believed to be front-runners for the contract.

Irish banks currently have €103bn of loans with the ECB, while the Irish Central Bank has lent €55.6bn, backed up by a letter of comfort from the Department of Finance.

It has been suggested that last year the ECB was key in forcing Ireland into an IMF/EU bailout, due to the size of the funding it was providing to the Irish banks.

The ECB has always denied this, but is known to want to cut its support to what are sometimes called "addicted" banks.

The search for advice on its support for the Irish banks was reported yesterday by IFR/Reuters, but the ECB declined to answer questions on the kind of advice the firms would be asked to provide.

The ECB said it had no comment on that issue.

The tender for the contract is not among those currently advertised by the ECB. It is not clear whether all contracts, whatever their value, have to be tendered.



Split

The ECB as recently as last week was highlighting the scale of its support for the Irish banks.

Its Ireland official, Klaus Masuch, said the size of the support and the low interest rates attaching to liquidity support should be borne in mind when Irish commentators criticised the bank.

He said the organisation was aware that many Irish families would not welcome recent interest rate increases, but the ECB set monetary policy for all of Europe, not just peripheral economies.

The ECB appeared to be split this week over the issue of what collateral it accepts for loans.

While its president, Jean Claude Trichet, rejected any suggestion it might accept Greek bonds that have defaulted, his views appeared to be contradicted by others.

Ewald Nowotny, governor of the Austrian central bank and a member of the ECB's general council, suggested the ECB could alter its rules for a brief period. However, he released a statement later clarifying his comments.

The ECB has massively leveraged up its balance sheet during the financial crisis, but it has warned on several occasions that exceptional liquidity support cannot last forever.

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