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Friday 9 December 2016

ECB prepares to put new bank support deal in place

Laura Noonan and Emmet Oliver

Published 26/03/2011 | 05:00

Enda Kenny. Photo: AP
Enda Kenny. Photo: AP

THE ECB could unveil a new support package for Ireland's banks as early as next Thursday -- if the results of the stress tests are bad enough to create panic about the state of the banks.

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The news comes after Taoiseach Enda Kenny spent two days in Brussels trying to convince ECB president John-Claude Trichet to help the banks.

The Irish Independent has learned that draft proposals for a "medium-term funding" solution for the Irish banks were circulated to ECB governing council members yesterday.

But the process is facing fresh legal difficulties because of Mr Kenny's public comments on the topic, which some saw as an attempt to influence the politically independent ECB.

The ECB has been working on solutions to the Irish banks' €140bn dependence on "last resort" central bank money, which is set to be tackled in next week's "stress tests".

It is understood that "very good" progress had been made on the issue, with plans drawn up for a "special facility for bank restructuring" that would allow the ECB to continue to lend money to the Irish banks for several years.

The ECB could make an announcement on the facility as early as next Thursday, on the same day as the stress test results, if the tests show the banks need another massive cash injection.

The ECB would then swing into action to try to restore confidence in the banks and prevent a crippling run on the banks' remaining deposits.

The tests are expected to reveal that the banks need more than €20bn in fresh investment, but less than the €35bn maximum provided by the EU/IMF bailout.

The ECB is already positioning the new facility for "bank restructuring" in general, rather than as a special concession to Irish banks, to head off such a challenge.

A number of options are being considered, and key issues like the interest rate to be charged by the new facility have yet to be agreed.

Any facility is likely to require an explicit guarantee from the Irish Government.

The progress comes despite unease about comments made by Mr Kenny yesterday.

In a lunchtime interview with RTE, Mr Kenny said the ECB's support was "critical" and the bank "now accepts that it would not be prudent to have immediate firesales of assets", which would be triggered if a funding solution was not agreed and the banks had to repay their existing €150bn debt.

Mr Kenny also told reporters he had personally met with Mr Trichet and "reminded" him "of the importance" of the ECB's help in the Irish banking crisis.

Discussions

"I said, obviously when the bank stress-test results become known next week, we'll be back again to have further discussions with the ECB," he added.

The comments create an issue for the ECB because Mr Kenny could be seen to be applying pressure to the ECB to do a deal, and because he also appeared to suggest that the ECB had accepted Ireland's position on the firesale issue.

The ECB's independence is enshrined by law, and it is illegal for the Central Bank to be influenced by politicians.

Irish Independent

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